<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
STAC SOFTWARE, INC.
---------------------------------------------------------------
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
STAC SOFTWARE, INC.
---------------------------------------------------------------
(NAME OF PERSON(S) FILING PROXY STATEMENT)
Payment of Filing Fee (Check the appropriate box)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
2. Aggregate number of securities to which transaction applies:
------------------------------------------------------------------------
3. Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
------------------------------------------------------------------------
4. Proposed maximum aggregate value of transaction:
------------------------------------------------------------------------
5. Total fee paid:
------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
------------------------------------------------------------------------
2. Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
3. Filing Party:
------------------------------------------------------------------------
4. Date Filed:
------------------------------------------------------------------------
<PAGE> 2
PRELIMINARY PROXY MATERIALS
STAC SOFTWARE, INC.
12636 HIGH BLUFF DRIVE, 4TH FLOOR
SAN DIEGO, CALIFORNIA 92130-2093
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 11, 1999
TO THE STOCKHOLDERS OF STAC SOFTWARE, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the
"Annual Meeting") of Stac Software, Inc., a Delaware corporation ("Stac" or the
"Company"), will be held on Thursday, March 11, 1999 at 10:00 a.m. local time,
at the Doubletree Hotel - Del Mar, 11915 El Camino Real, San Diego, California,
for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected;
2. To approve a series of amendments to the Company's Certificate of
Incorporation to effect, at any time prior to the Company's 2000 Annual
Meeting of Stockholders, a reverse stock split of the Company's Common
Stock whereby each outstanding 2, 2.5, 3, 3.5 and 4 shares, respectively,
would be combined, converted and changed into one share of Common Stock,
with the effectiveness of one of such amendments and the abandonment of
the other amendments, or the abandonment of all amendments as permitted
under Section 242(c) of the Delaware General Corporation Law, to be
determined by the Board of Directors;
3. To ratify and approve an increase in the aggregate number of shares of
Common Stock authorized for issuance under the Company's 1992 Stock
Option Plan, as amended, by 7,373,363 shares in connection with the
increase in shares subject to outstanding options thereunder resulting
from the Company's spin-off of Hi/fn, Inc. ("Hi/fn") in December 1998;
4. To ratify and approve an increase in the aggregate number of shares of
Common Stock authorized for issuance under the Company's 1992
Non-Employee Directors' Stock Option Plan, as amended, by 493,785 shares
in connection with the increase in shares subject to outstanding options
thereunder resulting from the Company's spin-off of Hi/fn in December
1998;
5. To ratify the selection of PricewaterhouseCoopers LLP as the Company's
independent accountants for the fiscal year ending September 30, 1999;
and
6. To transact such other business as may properly come before the meeting
or any continuation, adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice. The Board of Directors of the Company has
fixed the close of business on January 14, 1999, as the record date for the
determination of stockholders entitled to notice of and to vote at this Annual
Meeting and at any adjournment or postponement thereof.
By Order of the Board of Directors
/s/ Clifford L. Flowers
-----------------------------------
Clifford L. Flowers, Secretary
<PAGE> 3
San Diego, California
February 8, 1999
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE YOUR
REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID IF
MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 4
STAC SOFTWARE, INC.
12636 HIGH BLUFF DRIVE, 4TH FLOOR
SAN DIEGO, CALIFORNIA 92130-2093
---------------
PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
March 11, 1999
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors
(the "Board of Directors" or the "Board") of Stac Software, Inc., a Delaware
corporation ("Stac" or the "Company"), for use at the Annual Meeting of
Stockholders to be held on Thursday, March 11, 1999 at 10:00 a.m. local time
(the "Annual Meeting"), or at any adjournment or postponement thereof, for the
purposes set forth herein and in the accompanying Notice of Annual Meeting. The
Annual Meeting will be held at the Doubletree Hotel - Del Mar, 11915 El Camino
Real, San Diego, California. The Company intends to mail this proxy statement
and accompanying proxy card on or about February 8, 1999 to all stockholders
entitled to vote at the Annual Meeting.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies,
including preparation, assembly, printing and mailing of this proxy statement,
the proxy and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses, fiduciaries
and custodians holding in their name shares of the Company's common stock (the
"Common Stock") beneficially owned by others to forward to such beneficial
owners. The Company may reimburse persons representing beneficial owners of
Common Stock for their costs of forwarding solicitation materials to such
beneficial owners. Original solicitation of proxies by mail may be supplemented
by telephone, telegram or personal solicitation by directors, officers or other
regular employees of the Company. No additional compensation will be paid to
directors, officers or other regular employees for such services. Except as
described above, the Company does not intend to solicit proxies other than by
mail.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on
January 14, 1999 will be entitled to notice of and to vote at the Annual
Meeting. At the close of business on January 14, 1999, the Company had
outstanding and entitled to vote 23,680,670 shares of Common Stock. Each holder
of record of Common Stock on such date will be entitled to one vote for each
share held on all matters to be voted upon at the Annual Meeting.
All votes will be tabulated by the inspector of election appointed for
the meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved, except with respect to Proposal 2 in which case they will have
the same effect as negative votes.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power
to revoke it at any time before it is voted. It may be revoked by filing with
the Secretary of the Company at the Company's principal executive office,
1
<PAGE> 5
12636 High Bluff Drive, 4th Floor, San Diego, California 92130-2093, a written
notice of revocation or a duly executed proxy bearing a later date, or it may be
revoked by attending the meeting and voting in person. Attendance at the meeting
will not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
The deadline for submitting a stockholder proposal for inclusion in the
Company's proxy statement and form of proxy for the Company's 2000 Annual
Meeting of Stockholders pursuant to Rule 14a-8, "Shareholder Proposals," of the
Securities and Exchange Commission (the "Commission") is October 11, 1999. The
deadline for submitting a stockholder proposal or a nomination for director that
is not to be included in such proxy statement and proxy is also October 11,
1999. Stockholders are also advised to review the Company's Bylaws, which
contain additional advance notice requirements, including requirements with
respect to advance notice of stockholder proposals and director nominations.
PROPOSAL 1
ELECTION OF DIRECTORS
The Company currently has eight (8) directors. Two (2) of the current
directors, Mr. Gaylord and Dr. Whiting, will not stand for reelection to the
Board of Directors for personal reasons. The Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), provides that
the number of directors which shall constitute the whole Board of Directors
shall be fixed exclusively by one or more resolutions adopted from time to time
by the Board of Directors. In accordance with the Certificate of Incorporation,
the Board of Directors has resolved that effective as of the date of the Annual
Meeting, there will be authorized six (6) Board positions. Accordingly, there
are six (6) nominees for the six (6) Board positions to be filled as of the
Annual Meeting. Each director to be elected will hold office until the next
annual meeting of stockholders and until his successor is elected and has
qualified, or until such director's earlier death, resignation or removal. Each
nominee is currently a director of the Company, three (3) directors having been
elected by the stockholders, and three (3) directors, Peter D. Schleider, Corey
M. Smith and John T. Ticer, having been elected by the Board in January 1999.
Each nominee's background is outlined below.
Shares represented by executed proxies will be voted, if authority to
do so is not withheld, for the election of the six (6) nominees named below. In
the event that any nominee should be unavailable for election as a result of an
unexpected occurrence, such shares will be voted for the election of such
substitute nominee as management may propose. Each person nominated for election
has agreed to serve if elected and management has no reason to believe that any
nominee will be unable to serve.
Directors are elected by a plurality of the votes present in person or
represented by proxy and entitled to vote. Vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other causes and
any newly created directorships resulting from any increase in the number of
directors, shall, unless the Board of Directors determines by resolution that
any such vacancies or newly created directorships shall be filled by
stockholders, be filled only by the affirmative vote of a majority of the
remaining directors then in office, even if less than a quorum of the Board of
Directors. If elected at the Annual Meeting, each of the six nominees would
serve until the 2000 Annual Meeting, in each case until their successor is
elected and has qualified, or until such director's earlier death, resignation
or removal.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF EACH NAMED NOMINEE.
2
<PAGE> 6
NOMINEES
The names of the nominees and certain biographical information about
them are set forth below:
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION/
NAME AGE POSITION HELD WITH THE COMPANY
---- --- ------------------------------
<S> <C> <C>
Gary W. Clow................................ 44 Chairman of the Board of Directors
Robert W. Johnson, Ph.D..................... 49 Director
Antonio Perez............................... 53 Director
Peter D. Schleider.......................... 41 Director
Corey M. Smith.............................. 42 Director
John T. Ticer............................... 40 President, Chief Executive Officer and Director
</TABLE>
Mr. Clow has been Chairman of the Board of Directors since March 1992
and a director since 1983. Mr. Clow also served as Chief Executive Officer of
the Company from 1992 until January 1999 and as President of the Company from
1986 through 1996. Mr. Clow previously was a Vice President at Dynamic
Instruments, a measurement systems company for the defense industry, and a
Senior Software Engineer at the Portable Products Division of the Communications
Sector at Motorola, Inc. Mr. Clow received an M.A.S. in Computer Systems from
Florida Atlantic University and an M.S. in Electrical Engineering from the
California Institute of Technology.
Dr. Johnson has served as a director since 1983. He has been a private
investor since July 1988. From 1983 to July 1988, he was first a principal and
subsequently a general partner of Southern California Ventures, a private
venture capital firm. He is a director of Hi/fn, Inc., a publicly-held
semiconductor company, and ViaSat, Inc., a publicly-held communications
equipment company. Dr. Johnson holds undergraduate and graduate degrees from
Stanford University and Harvard University.
Mr. Perez has served as a director since 1997. Mr. Perez has served as
a Vice President of Hewlett-Packard Company and General Manager of its Inkjet
Products Group since 1995. From 1991 to 1995 Mr. Perez held General Manager
positions within Hewlett-Packard. He joined Hewlett-Packard in 1975. Mr. Perez
holds a Bachelor of Science degree in electrical engineering from Madrid
University in Spain, and International Business and Marketing Diplomas from
Institut European D'Administration des Affaires (Insead) in France.
Mr. Schleider has served as a director since January 1999. Mr.
Schleider has been the General Partner of RKB Capital, L.P., a private
investment partnership, since August 1998. From January 1998 to September 1998
Mr. Schleider was a partner in Matrix Capital Management, an investment
partnership. From 1987 through 1997 Mr. Schleider held positions with Wessels,
Arnold & Henderson, an investment bank headquartered in Minneapolis, Minnesota,
most recently as a securities research analyst for enterprise and systems level
software stocks. Mr. Schleider graduated from Trinity University with a Bachelor
of Arts degree in History/Economics and is a Chartered Financial Analyst.
Mr. Smith has served as a Director of the Company since January 1999.
From September 1996 to January 1999, Mr. Smith was President of Xcellenet, Inc.,
a remote systems management software company. From August 1995 to September
1996, Mr. Smith was the President and Chief Executive Officer of Decision Point
Data, an employment screening software and service bureau company, and from
December 1993 to August 1995 Mr. Smith was the President and Chief Executive
Officer of Creative Multimedia, a consumer CD-ROM publisher. From October 1988
to April 1992, Mr. Smith was the President and Chief Executive Officer of
Central Point Software, a desk-top utility software company. Mr. Smith received
a Bachelor of Science degree in Business Administration from Oregon State
University.
Mr. Ticer has served as a director of the Company since January 1999.
He has been President of the Company since February 1997 and Chief Executive
Officer of the Company since January 1999 and was Chief Operating Officer of the
Company from February 1997 until January 1999. From February 1996 to January
1997 he was Director of Business Alliances for Tivoli Systems, a subsidiary of
IBM Corporation, and from August 1995 to January 1996 was Director of Strategic
Investments at IBM. From April 1995 to August 1995 Mr. Ticer was
3
<PAGE> 7
Director of Corporate Development at Legent Corporation. Mr. Ticer held various
director level positions at Landmark Systems Corporation from December 1992 to
April 1995. Mr. Ticer holds Bachelor of Science and Master of Science degrees in
Engineering from the University of Virginia and a Master of Business
Administration from Dartmouth College.
BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS NOT DESCRIBED ABOVE
Douglas L. Whiting, Ph.D., age 42 is a director of the Company who will
be retiring from the Board as of the date of the Annual Meeting. Dr. Whiting has
served as a director since 1983. Since January 1999, Dr. Whiting has served as
the Chief Technologist of the Company. He was Vice President of Technology of
the Company from 1985 until January 1999 and was President of the Company from
1984 to 1986. He is a director of Hi/fn, Inc., a publicly held semiconductor
company. Dr. Whiting received a Ph.D. in Computer Science from the California
Institute of Technology.
Charles H. Gaylord, Jr., age 53, is a director of the Company who will
be resigning from the Board as of the date of the Annual Meeting. Mr. Gaylord
has served as a director since April 1995. He is currently a private technology
investor and a director of HNC Software Inc., a publicly held computer software
company. From December 1993 to September 1994, Mr. Gaylord served as Executive
Vice President of Intuit Inc., a personal and small business finance software
company, following the acquisition of ChipSoft, Inc., a tax preparation company,
by Intuit. Prior to that acquisition, from June 1990 to December 1993, he served
first as President and Chief Executive Officer and a director of ChipSoft and
then as its Chairman of the Board of Directors and Chief Executive Officer. Mr.
Gaylord holds Bachelor of Science and Master of Science degrees in aerospace
engineering from Georgia Institute of Technology and a Master of Business
Administration from Harvard University.
James T. Nicol, age 46, has been the Company's Vice President of
Product Operations since October 1998 and was Vice President of Development from
July 1996 through September 1998. From August 1995 to July 1996, he was on
assignment to Lotus Corporation as a director-level development manager tasked
with the transition of the groupware capability from IBM to Lotus. From December
1983 to August 1995, he held a variety of system software development positions
in IBM, from system software engineer to Senior Product Manager in the areas of
database, application development, and groupware.
Mr. Clifford L. Flowers, age 40, has served as Vice President of
Finance and Chief Financial Officer of the Company since January 1999. He was
the Company's Corporate Controller from June 1994 until January 1999. From June
1988 to June 1994, Mr. Flowers held various positions with
PricewaterhouseCoopers LLP, independent public accountants, most recently as an
Audit Manager. Mr. Flowers is a certified public accountant and received a
Bachelor of Science in accounting from San Diego State University.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended September 30, 1998 the Board of Directors
held nine (9) meetings. The Board has an Audit Committee and a Compensation
Committee.
The Audit Committee meets with the Company's independent accountants at
least annually to review the results of the annual audit and discuss the
financial statements, recommend to the Board the independent accountants to be
retained and receive and consider the accountants' comments as to controls,
adequacy of staff and management performance and procedures in connection with
audit and financial controls. During the fiscal year ended September 30, 1998
the Audit Committee was composed of three (3) non-employee directors: Mr.
Gaylord, Dr. Johnson and Mr. Perez. The Audit Committee met four (4) times in
fiscal 1998. Mr. Clow, Mr. Schleider and Dr. Johnson have been appointed to
serve on the Audit Committee, effective as of the Annual Meeting Date.
The Compensation Committee makes recommendations concerning salaries
and incentive compensation, awards stock options to employees and consultants
under the Company's stock option plans and otherwise determines compensation
levels and performs such other functions regarding compensation as the Board may
delegate. During the fiscal year ended September 30, 1998 the Compensation
Committee was composed of two (2)
4
<PAGE> 8
non-employee directors: Mr. Gaylord and Mr. Perez. The Compensation Committee
met two (2) times during fiscal 1998. As of the date of the Annual Meeting, Mr.
Clow, and Mr. Smith will replace Mr. Gaylord and Mr. Perez on the Compensation
Committee.
The Board of Directors has delegated to Messrs. Ticer and Clow the
authority to grant stock options under the Company's 1992 Stock Option Plan to
employees of the Company that are not officers, directors or 10% Stockholders of
the Company, so long as such grants are in accordance with guidelines that have
been approved by the Board of Directors.
During the fiscal year ended September 30, 1998, each Board member
attended at least 75% of the aggregate of the meetings of the Board and of the
committees on which he served and held during the period for which he was a
Board or Committee member, respectively.
PROPOSAL 2
AMENDMENTS TO CERTIFICATE OF INCORPORATION TO EFFECT A REVERSE STOCK SPLIT
BACKGROUND
On January 22, 1999, the Board of Directors considered and unanimously
adopted resolutions declaring the advisability of a series of amendments to the
Company's Certificate of Incorporation, as amended (the "Certificate of
Incorporation"), to effect, at any time prior to the Company's 2000 Annual
meeting of Stockholders in the discretion of the Board pursuant to Section
242(c) of the Delaware General Corporation Law, reverse stock splits of the
Company's Common Stock whereby each outstanding 2, 2.5, 3, 3.5 and 4 shares,
respectively, would be combined, converted and changed into one share of Common
Stock (the "Reverse Stock Splits"), with the effectiveness of one of such
Amendments and the abandonment of the other Reverse Stock Splits Amendments, or
the abandonment of all of such Amendments, to be determined by the Board.
If the Board determines to effect one of the Reverse Stock Splits (the
"Effective Reverse Stock Split") by filing the applicable amendment with the
Secretary of State of the State of Delaware, all other amendments shall be
abandoned. Approval of the Reverse Stock Splits will authorize the Board in its
discretion to effectuate the Effective Reverse Stock Split in any of the
following ratios: 1:2, 1:2.5, 1:3, 1:3.5, and 1:4, or to not effect any of the
Reverse Stock Splits. The Board believes that stockholder approval of selected
exchange ratios within an exchange ratio range (as opposed to approval of a
specified exchange ratio) in which the Reverse Stock Splits may be effected will
provide the Board with maximum flexibility to achieve the purposes of the
Reverse Stock Splits and, therefore, is in the best interests of the Company and
its stockholders. See "Reasons for the Reverse Stock Splits," below.
If the Reverse Stock Splits are approved by the stockholders and
following such approval the Board determines an Effective Reverse Stock Split is
in the best interest of the Company and its stockholders, the Certificate of
Incorporation would be amended accordingly. The text of the form of amendments
to the Certificate of Incorporation, one of which would be filed with the office
of the Secretary of State of the State of Delaware to effect the Effective
Reverse Stock Split, is set forth in Appendix A-1 through A-5 to this Proxy
Statement; provided, however, that such text is subject to amendment to include
such changes as may be required by the office of the Secretary of State of the
State of Delaware and as the Board deems necessary and advisable to effect the
Effective Reverse Stock Split.
REASONS FOR THE REVERSE STOCK SPLITS
On December 16, 1998, the Company completed the spin-off of its
semiconductor subsidiary Hi/fn, Inc., a Delaware corporation ("Hi/fn"), by way
of a special dividend of the Company's shares of Hi/fn to the Company's
stockholders (the "Hi/fn Spin-Off"). On the day of the Hi/fn Spin-Off, but prior
to its effectiveness, the Company's Common Stock closed at $5.81 on the Nasdaq
National Market ("Nasdaq NMS"). On the following day, December 17, 1998, the
Company's Common Stock closed at $1.47 on the Nasdaq NMS. In part due to the
Hi/fn
5
<PAGE> 9
Spin-Off and the resulting change in the trading price of the Company's Common
Stock, the Company's Board of Directors considered and approved seeking
stockholder approval of the Reverse Stock Splits.
The Board believes that the Effective Reverse Stock Split may be
desirable for a number of reasons. First, the Board believes that the Effective
Reverse Stock Split may improve the marketability and liquidity of the Company's
Common Stock. Second, the Effective Reverse Stock Split may improve the
Company's ability to raise new capital. Finally, the Board believes that the
Effective Reverse Stock Split will enhance the Company's ability to maintain the
listing of the Company's Common Stock on the Nasdaq NMS.
The Board believes the Effective Reverse Stock Split may have the
effect of raising the trading price of the Company's Common Stock. However,
because some investors may view the Effective Reverse Stock Split negatively in
that it reduces the number of shares available in the public market, there can
be no assurance that an adjustment to the market price of the Common Stock will
reflect proportionately the Effective Reverse Stock Split, or that such price,
if it does rise proportionally to such levels, will continue to escalate or be
sustained in the future. The Board believes that the increased market price of
its Common Stock expected as a result of the Effective Reverse Stock Split will
improve the marketability and liquidity of the Company's Common Stock by
appealing to a broader market than that which currently exists and will
encourage interest and trading in the Common Stock. Many brokerage houses and
institutional investors have internal policies and practices that either
prohibit them from investing in low-priced stocks or tend to discourage
individual brokers from recommending low-priced stocks to their customers. Some
of those policies and practices may function to make the processing of trades in
low-priced stocks economically unattractive to brokers. Additionally, because
brokers' commissions on low-priced stocks generally represent a higher
percentage of the stock price than commissions on higher-priced stocks, the
current average price per share of the Company's Common Stock can result in
individual stockholders paying transaction costs representing a higher
percentage of their total share value than would be the case if the share price
were substantially higher. If the Effective Reverse Stock Split is implemented,
however, holders of fewer than 100 shares of Common Stock ("odd-lots") after the
Effective Reverse Stock Split is effected may be charged brokerage fees that are
proportionately higher than holders of more than 100 shares of Common Stock
("round-lots"). The Board is hopeful that the anticipated higher market price
will reduce, to some extent, the negative effects on the liquidity and
marketability of the Company's Common Stock inherent in some of the policies and
practices of institutional investors and brokerage houses.
The Company may from time to time require additional sources of capital
to fund continuing operations. The Company believes an increase in the per share
price of the Company's Common Stock, which the Company expects as a consequence
of the Effective Reverse Stock Split, may enhance the acceptability of the
Common Stock by the financial community and the investing public and broaden the
investor pool from which the Company might be able to obtain additional
financing. In theory, the total number of shares outstanding should not, by
itself, affect the marketability of the Common Stock, the type of investor who
acquires it or the Company's reputation in the financial community. As a
practical matter, however, the opposite is in fact often the case. For example,
as noted above, because of the trading volatility often associated with
low-priced stocks, as a matter of policy many institutional investors are
prohibited from purchasing such stocks. For the same reason, brokers often
discourage their customers from purchasing such stocks. The reduction in the
number of outstanding shares of Common Stock caused by the Effective Reverse
Stock Split is anticipated initially to increase proportionally the per share
market price of the Common Stock and the Company believes it will have a
positive impact on the Company's ability to obtain capital from outside sources
if at any time it has the need to do so.
The Company's shares of Common Stock have been listed, and have traded,
on the Nasdaq NMS since May 6, 1992 when the Company completed its initial
public offering. The rules of the Nasdaq NMS require that as a condition of the
continued listing of a Company's securities on the Nasdaq NMS, the company
satisfy at least one of several alternative maintenance requirements, which
generally require that a company meet certain minimum criteria relating to its
financial condition, results of operations and trading market for its listed
securities. The maintenance criteria most applicable to the Company consist of
maintaining (i) a public float of at least 750,000 shares, (ii) a market value
of the public float of at least $5 million, (iii) a minimum bid price equal to
or greater than $1.00 per share, (iv) at least 400 stockholders (round-lot
holders), (v) net tangible assets of at least $4 million, (vi) at least two
registered market makers and (vii) compliance with certain corporate governance
requirements. The
6
<PAGE> 10
Company believes that it generally satisfies all of these
maintenance criteria; however, following the Hi/fn Spin-Off the Company's Common
Stock has at times traded at or below the $1.00 minimum bid price requirement.
The Company believes that if the Reverse Stock Splits are approved by the
stockholders at the Annual Meeting and the Effective Reverse Stock Split is
effectuated, the Company's shares of Common Stock will continue to have a
minimum bid price in excess of $1.00 per share. The Company would also need to
continue to satisfy all other maintenance criteria. There can be no assurance,
however, that the Company will be successful in meeting these maintenance
criteria or that, even if these maintenance criteria are met, Nasdaq will
continue to list the Company's Common Stock on the Nasdaq NMS.
If the Reverse Stock Splits are not approved by the stockholders at the
Meeting, then it is possible, depending on the volatility of the Company's
Common Stock and the Company's ability to meet the maintenance criteria
described above, that the Company will not meet the requirements for continued
listing on the Nasdaq NMS. The delisting of the Company's Common Stock from the
Nasdaq NMS could adversely affect the liquidity of the Company's Common Stock
and the ability of the Company to raise capital from outside sources should it
have the need to do so. In the event of delisting, the Company would most likely
submit an application for listing on the Nasdaq Small Cap Market. If not
approved for listing on the Nasdaq Small Cap Market, the shares of Common Stock
would likely be quoted in the "pink sheets" maintained by the National Quotation
Bureau, Inc. or the NASD Electronic Bulletin Board and the spread between the
bid and ask price of the shares of Common Stock is likely to be greater than at
present and stockholders may experience a greater degree of difficulty in
engaging in trades of shares of Common Stock.
Stockholders should note that the effect of the Reverse Stock Splits
upon the market prices for the Company's Common Stock cannot be accurately
predicted. In particular, there is no assurance that prices for shares of the
Common Stock after the Effective Reverse Stock Split will be 2, 2.5, 3, 3.5, or
4 times the prices for shares of the Common Stock immediately prior to the
Effective Reverse Stock Split. Furthermore, there can be no assurance that an
Effective Reverse Stock Split will achieve the desired results which have been
outlined above, nor can there be any assurance that an Effective Reverse Stock
Split will not adversely impact the market price of the Common Stock or,
alternatively, that any increased price per share of the Common Stock
immediately after an Effective Reverse Stock Split will be sustained for any
prolonged period of time.
BOARD DISCRETION TO IMPLEMENT REVERSE STOCK SPLITS
If the Reverse Stock Splits are approved by the stockholders of the
Company at the Meeting, the Effective Reverse Stock Split will be effected, if
at all, only upon a determination by the Board that one of the Reverse Stock
Splits (with an exchange ratio determined by the Board as described above) is in
the best interests of the Company and its stockholders. Such determination shall
be based upon certain factors, including but not limited to, existing and
expected marketability and liquidity of the Common Stock, prevailing market
conditions and the likely effect on the market price of the Common Stock.
Notwithstanding approval of the Reverse Stock Splits by the stockholders, the
Board may, in its sole discretion, abandon all of the proposed amendments and
determine prior to the effectiveness of any filing with the Delaware Secretary
of State not to effect any of the Reverse Stock Splits prior to the 2000 Annual
Meeting of Stockholders, as permitted under Section 242(c) of the Delaware
General Corporation Law. If the Board fails to implement any of the Reverse
Stock Splits prior to such meeting, stockholder approval again would be required
prior to implementing any reverse stock split.
EFFECTS OF THE REVERSE STOCK SPLITS ON REGISTRATION AND VOTING RIGHTS
The Company's Common Stock is currently registered under Section 12(g)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
Company is subject to the periodic reporting and other requirements of the
Exchange Act. The Reverse Stock Splits will not affect the registration of the
Company's Common Stock under the Exchange Act. After the Effective Reverse Stock
Split, the Company's Common Stock will continue to be reported on the Nasdaq NMS
under the symbol "STAC" (although Nasdaq will likely add the letter "D" to the
end of the trading symbol for a period of 20 trading days to indicate that the
Effective Reverse Stock Split has occurred).
7
<PAGE> 11
Proportionate voting rights and other rights of the holders of Common
Stock will not be affected by the Effective Reverse Stock Split (other than as a
result of the payment of cash in lieu of fractional shares as described below).
For example, a holder of 2% of the voting power of the outstanding shares of
Common Stock immediately prior to the effective time of the Effective Reverse
Stock Split will continue to hold 2% of the voting power of the outstanding
shares of Common Stock after the Effective Reverse Stock Split. Although the
Effective Reverse Stock Split will not affect the rights of stockholders or any
stockholder's proportionate equity interest in the Company (subject to the
treatment of fractional shares), the number of authorized shares of Common Stock
will not be reduced and will increase significantly the ability of the Board to
issue such authorized and unissued shares without further stockholder action.
The number of stockholders of record will not be affected by the Effective
Reverse Stock Split (except to the extent that any stockholder holds only a
fractional share interest and receives cash for such interest after the
Effective Reverse Stock Split).
EFFECT ON STOCK OPTIONS AND PAR VALUE
The Effective Reverse Stock Split will effect a reduction in the number
of shares of Common Stock available for issuance under the Company's 1989 Stock
Option Plan, 1992 Stock Option Plan, 1992 Non-Employee Directors' Stock Option
Plan and Employee Stock Purchase Plan (the "Plans") in proportion to the
exchange ratio of the Effective Reverse Stock Split. The aggregate number of
shares of Common Stock currently authorized for issuance under the Plans is
16,267,148 (prior to giving effect to the Effective Reverse Stock Split, but
after giving effect to the adjustments described in Proposals 3 and 4). The par
value of the Company's Common Stock will remain at $0.001 per share following
the effective time of the Effective Reverse Stock Split, while the number of
shares of Common Stock issued and outstanding will be reduced. Consequently, the
aggregate par value of the issued and outstanding Common Stock also will be
reduced. In addition, the number of authorized but unissued shares of Common
Stock effectively will be increased significantly by the Effective Reverse Stock
Split. For instance, based on the 23,680,670 shares of Common Stock outstanding
on January 14, 1999, and given the 100,000,000 shares of Common Stock currently
authorized under the Certificate of Incorporation, a one-for-three reverse stock
split (the mid-point of the proposed exchange ratios of the Reverse Stock
Splits) would have the effect of increasing the number of authorized but
unissued shares of Common Stock from 76,319,330 to approximately 92,106,444. The
issuance of such additional authorized shares, if such shares were issued, may
have the effect of diluting the earnings per share and book value per share, as
well as the stock ownership and voting rights, of outstanding Common Stock. The
effective increase in the number of authorized but unissued shares of Common
Stock may be construed as having an anti-takeover effect by permitting the
issuance of shares to purchasers who might oppose a hostile takeover bid or
oppose any efforts to amend or repeal certain provisions of the Company's
Certificate of Incorporation or Bylaws.
The Company also has outstanding certain stock options to purchase
shares of the Company's Common Stock. Under the terms of the outstanding stock
options, the Effective Reverse Stock Split will effect a reduction in the number
of shares of Company Common Stock issuable upon exercise of such stock options
in proportion to the exchange ratio of the Effective Reverse Stock Split and
will effect a proportionate increase in the exercise price of such outstanding
stock options. In connection with the Effective Reverse Stock Split, the number
of shares of Common Stock issuable upon exercise of outstanding stock options
will be rounded to the nearest whole share, and no cash payment will be made in
respect of such rounding.
EFFECTIVE DATE
The Effective Reverse Stock Split would become effective as of the
close of business on the date of filing (the "Effective Date") of a Certificate
of Amendment to the Certificate of Incorporation with the office of the
Secretary of State of the State of Delaware. Except as explained below with
respect to fractional shares, on the Effective Date, shares of Common Stock
issued and outstanding immediately prior thereto (the "Old Common Stock"), will
be, automatically and without any action on the part of the stockholders,
converted into new shares of Common Stock in accordance with the Effective
Reverse Stock Split ratio determined by the Board within the limits set forth in
this Proposal (the "New Common Stock").
8
<PAGE> 12
PAYMENT FOR FRACTIONAL SHARES
No fractional shares of New Common Stock will be issued as a result of
any of the Reverse Stock Splits. In lieu of any such fractional share interest,
each holder of Old Common Stock who as a result of the Effective Reverse Stock
Split would otherwise receive a fractional share of New Common Stock will be
entitled to receive cash in an amount equal to the product obtained by
multiplying (i) the closing sales price of the Company's Common Stock on the
Effective Date as reported on the Nasdaq NMS by (ii) the number of shares of Old
Common Stock held by such holder that would otherwise have been exchanged for
such fractional share interest. Such amount will be issued to such holder in the
form of a check in accordance with the exchange procedures outlined under
"Exchange of Stock Certificates," below.
EXCHANGE OF STOCK CERTIFICATES
Shortly after the Effective Date, each holder of an outstanding
certificate theretofore representing shares of Old Common Stock will receive
from American Stock Transfer and Trust Company, as the Company's exchange agent
(the "Exchange Agent") for the Effective Reverse Stock Split, instructions for
the surrender of such certificate to the Exchange Agent. Such instructions will
include a form of Transmittal Letter to be completed and returned to the
Exchange Agent. As soon as practicable after the surrender to the Exchange Agent
of any certificate which prior to the Effective Reverse Stock Split represented
shares of Old Common Stock, together with a duly executed Transmittal Letter and
any other documents the Exchange Agent may specify, the Exchange Agent shall
deliver to the person in whose name such certificate had been issued
certificates registered in the name of such person representing the number of
full shares of New Common Stock into which the shares of Old Common Stock
previously represented by the surrendered certificate shall have been
reclassified and a check for any amounts to be paid in cash in lieu of any
fractional share interest. Each certificate representing shares of New Common
Stock issued in connection with the Effective Reverse Stock Split will continue
to bear any legends restricting the transfer of such shares that were borne by
the surrendered certificates representing the shares of Old Common Stock. Until
surrendered as contemplated herein, each certificate which immediately prior to
the Effective Reverse Stock Split represented any shares of Old Common Stock
shall be deemed at and after the Effective Reverse Stock Split to represent the
number of full shares of New Common Stock contemplated by the preceding
sentence.
No service charges, brokerage commissions or transfer taxes shall be
payable by any holder of any certificate which prior to approval of the Reverse
Stock Splits represented any shares of Old Common Stock, except that if any
certificates of New Common Stock are to be issued in a name other than that in
which the certificates for shares of Old Common Stock surrendered are
registered, it shall be a condition of such issuance that (i) the person
requesting such issuance shall pay to the Company any transfer taxes payable by
reason thereof (or prior to transfer of such certificate, if any) or establish
to the satisfaction of the Company that such taxes have been paid or are not
payable, (ii) such transfer shall comply with all applicable federal and state
securities laws, and (iii) such surrendered certificate shall be properly
endorsed and otherwise be in proper form for transfer.
NO APPRAISAL RIGHTS
Under Delaware law, stockholders of the Company are not entitled to
appraisal rights with respect to the proposed Reverse Stock Splits.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE REVERSE STOCK SPLITS
A summary of the federal income tax consequences of the proposed
Reverse Stock Splits to the Company and to individual stockholders is set forth
below. The following discussion is based upon present federal income tax law.
The discussion is not intended to be, nor should it be relied on as, a
comprehensive analysis of the tax issues arising from or relating to the
proposed Reverse Stock Splits. In addition, the Company has not sought and will
not seek an opinion of counsel or a ruling from the Internal Revenue Service
regarding the federal income tax consequences of the proposed Reverse Stock
Splits. ACCORDINGLY, STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS
FOR MORE DETAILED INFORMATION REGARDING THE EFFECTS OF THE PROPOSED
9
<PAGE> 13
REVERSE STOCK SPLITS ON THEM UNDER APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN
INCOME TAX LAWS.
It is intended that the Effective Reverse Stock Split will constitute a
reorganization (a "Reorganization") within the meaning of Section 368(a)(1)(E)
of the Internal Revenue Code of 1986, as amended. Assuming that the Effective
Reverse Stock Split qualifies as a Reorganization, the following federal income
tax consequences should result:
1. A stockholder will not recognize any gain or loss as a result of the
Effective Reverse Stock Split except to the extent a stockholder receives
cash in lieu of a fractional share. To the extent a stockholder receives
cash in lieu of a fractional share, for tax purposes the stockholder will
be deemed to have sold the fractional share to the Company. Although it is
impossible to predict with certainty the tax consequences to any
individual stockholder, such stockholder will likely recognize a gain or
loss as a result of the repurchase of a fractional share equal to the
difference between (i) the stockholder's proportionate adjusted basis in
such fractional share, and (ii) the cash amount received for such
fractional share. Any gain will be treated as short-term capital gain
taxable at a maximum federal income tax rate of 39.6% to a non-corporate
stockholder if the stockholder has held his shares for one year or less
prior to the Effective Date or long-term capital gain taxable at a maximum
federal income tax rate of 20% to a non-corporate stockholder if the
stockholder has held his shares for more than one year prior to the
Effective Date.
2. The aggregate tax basis of the shares of New Common Stock received by the
stockholder pursuant to the Effective Reverse Stock Split will equal the
aggregate tax basis of the shares of Old Common Stock held by the
stockholder immediately prior to the Effective Date of the Effective
Reverse Stock Split reduced by any basis allocated to a fractional share
for which the stockholder receives cash. The stockholder will be able to
"tack" the holding period of the Old Common Stock prior to the Effective
Reverse Stock Split to the holding period of the New Common Stock received
by the stockholder as a result of the Effective Reverse Stock Split,
provided that the shares of Old Common Stock were capital assets in the
hands of the stockholder.
3. The Company will not recognize gain or loss as a result of the Effective
Reverse Stock Split.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of
Common Stock outstanding and entitled to vote is necessary to approve the
Reverse Stock Splits and the amendment to the Certificate of Incorporation to
effect the Effective Reverse Stock Split.
THE BOARD OF DIRECTORS UNANIMOUSLY
RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 3
RATIFICATION AND APPROVAL OF INCREASED SHARE RESERVE UNDER THE 1992 STOCK
OPTION PLAN, AS AMENDED
BACKGROUND
In March 1992, the Board of Directors adopted, and the stockholders of
the Company subsequently approved, the 1992 Stock Option Plan. Prior to the
Hi/fn Spin-Off, under the 1992 Stock Option Plan, as amended (the "1992 Plan"),
there were 5,000,000 shares of the Company's Common Stock authorized for
issuance upon exercise of options granted thereunder to employees (including
officers), directors and consultants of the Company.
On December 16, 1998, the Company completed the Hi/fn Spin-Off. The
1992 Plan, as approved by the stockholders of the Company, provides that as a
result of the Hi/fn Spin-Off, both the 1992 Plan and options outstanding
thereunder shall be appropriately adjusted (see "Adjustment Provisions" below).
The purpose of such
10
<PAGE> 14
an adjustment is to compensate holders of Stac options for the decline in value
of Stac Common Stock directly attributable to the distribution of Hi/fn shares
to the Company's stockholders. Absent an adjustment to the options outstanding
under the 1992 Plan, optionholders who did not participate in nor otherwise
benefit from the Hi/fn Spin-Off, would suffer a diminution in the value of their
1992 Plan options upon the distribution of the Hi/fn shares to the Company's
stockholders. Further, pursuant to the terms of the 1992 Plan, the Board has the
power to construe and interpret the provisions of the 1992 Plan, including the
provisions of the 1992 Plan regarding appropriate adjustments to be made as a
result of the Hi/fn Spin-Off. The adjustment provisions of the 1992 Plan are
designed to ensure that, among other things, optionholders retain the same
intrinsic value embodied in their options, notwithstanding the completion of the
Hi/fn Spin-Off or other similar transactions, such as stock splits,
recapitalizations and the like.
ADJUSTMENT TO OUTSTANDING OPTIONS
Accordingly, in connection with the Hi/fn Spin-Off and pursuant to the
adjustment provisions of the 1992 Plan, the Board determined that options
outstanding under the 1992 Plan would be adjusted, in substance, based on the
relative closing sales prices of the Company's Common Stock and the Hi/fn Common
Stock at the time of the Hi/fn Spin-Off. The adjustment to outstanding Company
options is more fully described in Hi/fn's Registration Statement on Form 10, as
amended, filed with the Securities and Exchange Commission in connection with
the Hi/fn Spin-Off. In accordance with the foregoing and as a result of the
relative trading values of the Company's and Hi/fn's Common Stock, options
outstanding under the 1992 Plan as of the Hi/fn Spin-Off were adjusted by
multiplying the number of shares subject to each option by 4.221 and by dividing
the per-share exercise price of each option by 4.221.
As of December 16, 1998 and immediately prior to the Hi/fn Spin-Off, an
aggregate of 2,433,276 shares of the Company's Common Stock had been granted
under the 1992 Plan (net of exercised, canceled or expired options) and
1,545,269 shares (plus any shares that might in the future be returned to the
1992 Plan as a result of cancellations or expirations of options) remained
available for future grant under the 1992 Plan. As a result of the adjustments
to options outstanding under the 1992 Plan described above, as of the Hi/fn
Spin-Off, an additional 6,935,702 shares became subject to outstanding options
for a total of 9,368,978 shares subject to options outstanding under the 1992
Plan.
ADJUSTMENT TO 1992 PLAN SHARE RESERVE
In addition, in connection with the Hi/fn Spin-Off and pursuant to the
adjustment provisions of the 1992 Plan, the Board approved an increase in the
number of shares of Common Stock authorized for issuance under the 1992 Plan.
The increase approved by the Board was necessary both to cover the additional
options outstanding pursuant to the 1992 Plan, as adjusted for the Hi/fn
Spin-Off as described above, and in order to maintain, as of immediately
following the Hi/fn Spin-Off, the same Fully Diluted Option Reserve Percentage
(defined below) that existed under the 1992 Plan as of immediately prior to the
Hi/fn Spin-Off. The "Fully Diluted Option Reserve Percentage" is defined as the
ratio of the number of shares available for future option grants to the sum of
the number of shares outstanding and the number of shares subject to existing
option grants. In accordance with the foregoing, the Board approved increasing
the number of shares of Common Stock authorized for issuance under the 1992 Plan
by 7,373,363 shares for a total of 12,373,363 shares reserved for issuance under
the 1992 Plan. The share numbers described above in this Proposal 3 are subject
to further adjustment (i.e., proportional reduction) in the event the Effective
Reverse Split is approved and consummated as described in Proposal 2.
Stockholders are requested in this Proposal 3 to ratify and approve the
increase in the number of shares reserved for issuance under the 1992 Plan as
described above. Although the Company believes that the increase in the share
reserve described above was made pursuant to the terms of the 1992 Plan, the
Board has decided to submit this Proposal 3 to the stockholders in order to
ensure favorable tax treatment with respect to incentive stock options
outstanding under the 1992 Plan. If this Proposal 3 is not approved and such
increase in the share reserve is not so ratified, the Board will reconsider the
Company's alternatives with respect to the 1992 Plan and the impact on it of the
Hi/fn Spin-Off, which may include paying cash compensation to optionholders, the
adoption of another stock option plan of the Company or other adjustments.
11
<PAGE> 15
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to ratify and approve the 1992 Plan, as amended. For purposes of this
vote, abstentions will be counted toward the tabulation of votes counted and
will have the same effect as negative votes, while broker non-votes are counted
toward a quorum but are not counted for any purpose in determining whether this
matter has been ratified and approved.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
The essential features of the 1992 Plan are outlined below:
GENERAL
The 1992 Plan provides for the grant of both incentive and nonstatutory
stock options. Incentive stock options granted under the 1992 Plan are intended
to qualify as "incentive stock options" within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Nonstatutory stock
options granted under the 1992 Plan are intended not to qualify as incentive
stock options under the Code. See "Federal Income Tax Information" for a
discussion of the tax treatment of incentive and nonstatutory stock options.
PURPOSE
The 1992 Plan was adopted to provide a means by which selected
employees and directors (including officers) of and consultants to the Company
and its affiliates could be given an opportunity to purchase stock in the
Company, to assist in retaining the services of employees holding key positions,
to secure and retain the services of persons capable of filling such positions
and to provide incentives for such persons to exert maximum efforts for the
success of the Company. All of the Company's approximately 134 employees and
consultants are eligible to participate in the 1992 Plan.
ADMINISTRATION
The 1992 Plan is administered by the Board of Directors of the Company.
The Board has the power to construe and interpret the 1992 Plan and, subject to
the provisions of the 1992 Plan, to determine the persons to whom and the dates
on which options will be granted, the number of shares to be subject to each
option, the time or times during the term of each option within which all or a
portion of such option may be exercised, the exercise price, the type of
consideration and other terms of the option.
The Board of Directors is authorized to delegate administration of the
1992 Plan to a committee composed of not fewer than two members of the Board.
The Board has delegated administration of the 1992 Plan to the Compensation
Committee of the Board. As used herein with respect to the 1992 Plan, the
"Board" refers to the Compensation Committee as well as to the Board of
Directors itself.
The 1992 Plan provides that, subject to the Board's discretion,
directors serving on the Compensation Committee are to be "outside directors"
within the meaning of Section 162(m). The current members of the Compensation
Committee are both "outside directors." This limitation excludes from the
Compensation Committee (a) current employees of the Company, (b) former
employees of the Company receiving compensation for past services (other than
benefits under a tax-qualified pension plan) during the taxable year, (c)
current and former officers of the Company or its current affiliated
corporations, and (d) directors currently receiving direct or indirect
remuneration from the Company in any capacity (other than as a director).
12
<PAGE> 16
ELIGIBILITY
Incentive stock options may be granted under the 1992 Plan only to
employees (including officers) of the Company and its affiliates. Employees
(including officers), directors and consultants are eligible to receive
nonstatutory stock options under the 1992 Plan.
No incentive stock option may be granted under the 1992 Plan to any
person who, at the time of the grant, owns (or is deemed to own) stock
possessing more than 10% of the total combined voting power of the Company or
any affiliate of the Company, unless the option exercise price is at least 110%
of the fair market value of the stock subject to the option on the date of
grant, and the term of the option does not exceed five years from the date of
grant. The aggregate fair market value, determined at the time of grant, of the
shares of Common Stock with respect to which such options granted under the 1992
Plan are exercisable for the first time by an optionee during any calendar year
(under all such plans of the Company and its affiliates) may not exceed
$100,000.
The Company added to the 1992 Plan a per-employee, per-calendar year
limitation equal to 3% of the number of outstanding shares of Common Stock on
the record date for the 1996 Annual Meeting. As adjusted for the Hi/fn Spin-Off,
such limitation currently stands at 2,262,186 shares. The primary reason for
adding this limitation is to permit the Company to continue to be able to deduct
for tax purposes the compensation attributable to the exercise of options
granted under the 1992 Plan. Previously, the Board or the Compensation Committee
determined in its discretion the number of shares subject to an option for any
employee and no such formal limitation was placed on the number of shares
available for an option to an employee. To date, the Company has not granted to
any employee in any calendar year options to purchase a number of shares equal
to or in excess of the limitation.
STOCK SUBJECT TO THE 1992 PLAN
If options granted under the 1992 Plan expire or otherwise terminate
without being exercised, the Common Stock not purchased pursuant to such options
again becomes available for issuance under the 1992 Plan.
TERMS OF OPTIONS
The following is a description of the permissible terms of options
under the 1992 Plan. Individual option grants may be more restrictive as to any
or all of the permissible terms described below.
Exercise Price; Payment. The exercise price of incentive stock options
under the 1992 Plan may not be less than the fair market value of the Common
Stock subject to the option on the date of the option grant, and in some cases
(see "Eligibility" above), may not be less than 110% of such fair market value.
The exercise price of nonstatutory options under the 1992 Plan may not be less
than 50% of the fair market value of the Common Stock subject to the option on
the date of the option grant. At January 14, 1999, the closing price of the
Company's Common Stock as reported on the Nasdaq National Market System was
$1.03 per share.
In the event of a decline in the value of the Company's Common Stock,
the Board has the authority to offer employees the opportunity to replace
outstanding higher priced options, whether incentive or nonstatutory, with new
lower priced options.
The exercise price of options granted under the 1992 Plan must be paid
either: (a) in cash at the time the option is exercised; or (b) at the
discretion of the Board, (i) by delivery of other Common Stock of the Company,
(ii) pursuant to a deferred payment arrangement or (c) in any other form of
legal consideration acceptable to the Board.
Option Exercise. Options granted under the 1992 Plan may become
exercisable in cumulative increments ("vest") as determined by the Board. Shares
covered by currently outstanding options under the 1992 Plan typically vest at a
rate of 20% after one year has passed from the date of grant, with the remainder
vesting at the rate of 1/60th per month (20% per year of the total shares
covered by the option) during the period the optionee is providing services to
the Company or any affiliate of the Company, whether as an employee, director or
consultant
13
<PAGE> 17
of the Company or any affiliate of the Company, as the case may be. Shares
covered by options granted in the future under the 1992 Plan may be subject to
different vesting terms. The Board has the power to accelerate the time during
which an option may be exercised. In addition, options granted under the 1992
Plan may permit exercise prior to vesting, but in such event the optionee may be
required to enter into an early exercise stock purchase agreement that allows
the Company to repurchase shares not yet vested at their exercise price should
the optionee leave the employ of the Company before vesting. To the extent
provided by the terms of an option, an optionee may satisfy any federal, state
or local tax withholding obligation relating to the exercise of such option by a
cash payment upon exercise, by authorizing the Company to withhold a portion of
the stock otherwise issuable to the optionee, by delivering already-owned stock
of the Company or by a combination of these means.
Term. The maximum term of options under the 1992 Plan is ten years,
except that in certain cases (see "Eligibility") the maximum term is five years.
Generally, incentive stock options under the 1992 Plan terminate three months
after termination of the optionee's employment or relationship as a consultant
or director of the Company or any affiliate of the Company, unless such
termination is due to such person's death or permanent and total disability (as
defined in the Code), in which case the option may, but need not, provide that
it may be exercised at any time within one year of such termination, but only to
the extent the option was exercisable at the time of such termination.
Nonstatutory options by their terms may provide for exercise within a longer
period of time following termination of employment or the relationship as a
consultant or director.
ADJUSTMENT PROVISIONS
If there is any change in the stock subject to the 1992 Plan or subject
to any option granted under the 1992 Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the 1992 Plan and options
outstanding thereunder will be appropriately adjusted as to the class and the
maximum number of shares subject to such plan, the maximum number of shares
which may be granted to an employee during a calendar year, and the class,
number of shares and price per share of stock subject to such outstanding
options.
EFFECT OF CERTAIN CORPORATE EVENTS
The 1992 Plan provides that, in the event of (a) a dissolution or
liquidation of the Company, (b) a merger or consolidation in which the Company
is not the surviving corporation or (c) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's Common Stock
outstanding prior to the merger are converted into other property, then at the
sole discretion of the Board and to the extent permitted by law: (i) any
surviving corporation will be required to either assume options outstanding
under the 1992 Plan or substitute similar options for those outstanding under
such plan, (ii) such options will continue in full force and effect, (iii) the
time during which such options may be exercised shall be accelerated and the
options terminated if not exercised prior to such event, or (iv) such options
shall be terminated if not exercised prior to such event. The acceleration of an
option in the event of an acquisition or similar corporate event may be viewed
as an antitakeover provision, which may have the effect of discouraging a
proposal to acquire or otherwise obtain control of the Company.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the 1992 Plan without stockholder
approval or ratification at any time or from time to time. Unless sooner
terminated, the 1992 Plan will terminate on March 12, 2002.
The Board may also amend the 1992 Plan at any time or from time to
time. However, no amendment will be effective unless approved by the
stockholders of the Company within twelve months before or after its adoption by
the Board if the amendment would: (a) modify the requirements as to eligibility
for participation (to the extent such modification requires stockholder approval
in order for the 1992 Plan to satisfy Section 422 of the Code, if applicable, or
Rule 16b-3 promulgated by the Commission under the Securities Exchange Act of
1934, as amended (the "Exchange Act")); (b) increase the number of shares
reserved for issuance upon exercise of options (unless due to an adjustment
resulting from a change in the stock subject to the 1992 Plan); or (c) change
any other provision of
14
<PAGE> 18
the 1992 Plan in any other way if such modification requires stockholder
approval in order to comply with Rule 16b-3 or satisfy the requirements of
Section 422 of the Code. The Board may submit any other amendment to the 1992
Plan for stockholder approval, including, but not limited to, amendments
intended to satisfy the requirements of Section 162(m) of the Code regarding the
exclusion of performance-based compensation from the limitation on the
deductibility of compensation paid to certain employees.
RESTRICTIONS ON TRANSFER
Options granted under the Option Plan may not be transferred except by
will or by the laws of descent and distribution, and may be exercised during the
lifetime of the optionee only by the optionee.
FEDERAL INCOME TAX INFORMATION
Incentive Stock Options. Incentive stock options under the 1992 Plan
are intended to be eligible for the favorable federal income tax treatment
accorded to "incentive stock options" under the Code.
There generally are no federal income tax consequences to the optionee
or the Company by reason of the grant or exercise of an incentive stock option.
However, the exercise of an incentive stock option may increase the optionee's
alternative minimum tax liability, if any.
If an optionee holds stock acquired through exercise of an incentive
stock option for more than two years from the date on which the option is
granted and more than one year from the date on which the shares are transferred
to the optionee upon exercise of the option, any gain or loss on a disposition
of such stock will be long-term capital gain or loss. Generally, if the optionee
disposes of the stock before the expiration of either of these holding periods
(a "disqualifying disposition"), at the time of disposition, the optionee will
realize taxable ordinary income equal to the lesser of (a) the excess of the
stock's fair market value on the date of exercise over the exercise price, or
(b) the optionee's actual gain, if any, on the purchase and sale. The optionee's
additional gain, or any loss, upon the disqualifying disposition will be a
capital gain or loss, which will be long-term or short-term depending on whether
the stock was held for more than one year. Long-term capital gains currently are
subject to lower tax rates than ordinary income. Currently, noncorporate
taxpayers are subject to a maximum federal capital gains rate of 20% and a
maximum federal ordinary income rate of 39.6%. Slightly different rules may
apply to optionees who acquire stock subject to certain repurchase options or
who are subject to Section 16(b) of the Exchange Act.
To the extent the optionee recognizes ordinary income by reason of a
disqualifying disposition, the Company will generally be entitled (subject to
the requirement of reasonableness, the provisions of Section 162(m) of the Code
and the satisfaction of a tax reporting obligation) to a corresponding business
expense deduction in the tax year in which the disqualifying disposition occurs.
Nonstatutory Stock Options. Nonstatutory stock options granted under
the 1992 Plan generally have the following federal income tax consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a nonstatutory stock option. Upon exercise of a nonstatutory
stock option, the optionee normally will recognize taxable ordinary income equal
to the excess of the stock's fair market value on the date of exercise over the
option exercise price. Generally, with respect to employees, the Company is
required to withhold from regular wages or supplemental wage payments an amount
based on the ordinary income recognized. Subject to the requirement of
reasonableness, the provisions of Section 162(m) of the Code and the
satisfaction of a tax reporting obligation, the Company will generally be
entitled to a business expense deduction equal to the taxable ordinary income
realized by the optionee. Upon disposition of the stock, the optionee will
recognize a capital gain or loss equal to the difference between the selling
price and the sum of the amount paid for such stock plus any amount recognized
as ordinary income upon exercise of the option. Such gain or loss will be long
or short-term depending on whether the stock was held for more than one year.
Slightly different rules may apply to optionees who acquire stock subject to
certain repurchase options or who are subject to Section 16(b) of the Exchange
Act.
15
<PAGE> 19
Potential Limitation on Company Deductions. Section 162(m) of the Code
denies a deduction to any publicly held corporation for compensation paid to
certain employees in a taxable year to the extent that compensation exceeds
$1,000,000 for a covered employee. It is possible that compensation attributable
to stock options, when combined with all other types of compensation received by
a covered employee from the Company, may cause this limitation to be exceeded in
any particular year.
Certain kinds of compensation, including qualified "performance-based
compensation," are disregarded for purposes of the deduction limitation. In
accordance with Treasury regulations issued under Section 162(m), compensation
attributable to stock options will qualify as performance-based compensation,
provided that the option is granted by a compensation committee comprised solely
of "outside directors" and either: (a) the option plan contains a per-employee
limitation on the number of shares for which options may be granted during a
specified period, the per-employee limitation is approved by the stockholders,
and the exercise price of the option is no less than the fair market value of
the stock on the date of grant; or (b) the option is granted (or exercisable)
only upon the achievement (as certified in writing by the compensation
committee) of an objective performance goal established in writing by the
compensation committee while the outcome is substantially uncertain, and the
option is approved by stockholders.
Other Tax Consequences. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of options granted under
the 1992 Plan. Tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial interpretations
of the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable. Participants in the 1992 Plan who are residents of or are
employed in a country other than the United States may be subject to taxation in
accordance with the tax laws of that particular country in addition to or in
lieu of United States federal income taxes.
During the fiscal year ended September 30, 1998, the Company did not
grant any options under the 1992 Plan to any of its Named Executive Officers
(defined below) or directors of the Company. During that same period, options to
purchase an aggregate of 1,684,179 shares (adjusted to account for the Hi/fn
Spin-Off) were granted to all employees of the Company other than the Named
Executive Officers as a group (exclusive of expired options).
PROPOSAL 4
RATIFICATION AND APPROVAL OF INCREASED SHARE RESERVE UNDER THE
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN, AS AMENDED
BACKGROUND
In March 1992, the Board of Directors adopted, and the stockholders
subsequently approved, the 1992 Non-Employee Directors' Stock Option Plan. Prior
to the Hi/fn Spin-Off, under the 1992 Non-Employee Directors' Stock Option Plan,
as subsequently amended and approved by the stockholders (the "Directors'
Plan"), there were 400,000 shares of the Company's Common Stock authorized for
issuance upon exercise of options granted thereunder to Non-Employee Directors
of the Company (i.e., members of the Board of Directors who are not otherwise
employees of the Company or of any affiliate of the Company).
On December 16, 1998, the Company completed the Hi/fn Spin-Off. The
Directors' Plan, as approved by the stockholders of the Company, provides that
as a result of the Hi/fn Spin-Off, both the Directors' Plan and options
outstanding thereunder shall be appropriately adjusted (see "Adjustment
Provisions" below). The purpose of such an adjustment is to compensate holders
of Stac options for the decline in value of Stac Common Stock directly
attributable to the distribution of Hi/fn shares to the Company's stockholders.
Absent an adjustment to the options outstanding under the Directors' Plan,
optionholders who did not participate in nor otherwise benefit from the Hi/fn
Spin-Off would suffer a diminution in the value of their Directors' Plan options
upon the distribution of the Hi/fn shares to the Company's stockholders.
Further, pursuant to the terms of the Directors' Plan, the Board has the
16
<PAGE> 20
power to construe and interpret the provisions of the Directors' Plan, including
the provisions of the Directors' Plan regarding appropriate adjustments to be
made as a result of the Hi/fn Spin-Off. The adjustment provisions of the
Directors' Plan are designed to ensure that, among other things, optionholders
retain the same intrinsic value embodied in their options, notwithstanding the
completion of the Hi/fn Spin-Off or other similar transactions, such as stock
splits, recapitalizations and the like.
ADJUSTMENT TO OUTSTANDING OPTIONS
Accordingly, in connection with the Hi/fn Spin-Off and pursuant to the
adjustment provisions of the Directors' Plan, the Board determined that options
outstanding under the Directors' Plan would be adjusted, in substance, based on
the relative closing sales prices of the Company's Common Stock and the Hi/fn
Common Stock at the time of the Hi/fn Spin-Off. The adjustment to outstanding
Company options is more fully described in Hi/fn's Registration Statement on
Form 10, as amended, filed with the Commission in connection with the Hi/fn
Spin-Off. In accordance with the foregoing and as a result of the relative
trading values of the Company's and Hi/fn's Common Stock at the time of the
Hi/fn Spin-Off, options outstanding under the Directors' Plan as of the Hi/fn
Spin-Off were adjusted by multiplying the number of shares subject to each
option by 4.221 and by dividing the per-share exercise price of each option by
4.221.
As of December 16, 1998 and immediately prior to the Hi/fn Spin-Off,
options to purchase an aggregate of 130,000 shares of the Company's Common Stock
had been granted under the Directors' Plan (net of exercised, canceled and
expired options) and 265,000 shares (plus any shares that might in the future be
returned to the Directors' Plan as a result of cancellations or expirations of
options) remained available for future grant under the Directors' Plan. As a
result of the adjustments to options outstanding under the Directors' Plan
described above, as of the Hi/fn Spin-Off, an additional 418,730 shares became
subject to outstanding options for a total of 548,730 shares subject to options
outstanding under the Directors' Plan.
ADJUSTMENT TO DIRECTORS' PLAN SHARE RESERVE
In addition, in connection with the Hi/fn Spin-Off and pursuant to the
adjustment provisions of the Directors' Plan, the Board approved an increase in
the number of shares of Common Stock authorized for issuance under the
Directors' Plan. The increase approved by the Board was necessary both to cover
the additional options outstanding pursuant to the Directors' Plan, as adjusted
for the Hi/fn Spin-Off as described above, and in order to maintain, as of
immediately following the Hi/fn Spin-Off, the same Fully Diluted Option Reserve
Percentage that existed under the Directors' Plan as of immediately prior to the
Hi/fn Spin-Off. In accordance with the foregoing, the Board approved the
increase in the number of shares of Common Stock authorized for issuance under
the Directors' Plan by 493,785 shares, for a total of 893,785 shares reserved
for issuance under the Directors' Plan. The share numbers described above in
this Proposal 4 are subject to further adjustment (i.e., proportional reduction)
in the event the Effective Reverse Split is approved and consummated as
described in Proposal 2.
Stockholders are requested in this Proposal 4 to ratify and approve the
increase in the number of shares reserved for issuance under the Directors' Plan
as described above. Although the Company believes that the increase in the share
reserve described above was made pursuant to the terms of the Directors' Plan,
the Board has decided to submit this Proposal 4 to the stockholders. If this
Proposal 4 is not approved and such increase in the share reserve is not so
ratified, the Board will reconsider the Company's alternatives with respect to
the Directors' Plan and the impact on it of the Hi/fn Spin-Off, which may
include paying cash compensation to optionholders, the adoption of another stock
option plan of the Company or other adjustments.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the meeting will be
required to ratify and approve the Directors' Plan, as amended. For purposes of
this vote, abstentions will be counted toward the tabulation of votes counted
and will have the same effect as negative votes, while broker non-votes are
counted toward a quorum but are not counted for any purpose in determining
whether this matter has been ratified and approved.
17
<PAGE> 21
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 4.
The essential features of the Directors' Plan, as amended, are outlined below.
GENERAL
The Directors' Plan provides for the grant of non-statutory stock
options to Non-Employee Directors. Such options granted under the Directors'
Plan are intended not to qualify as incentive stock options under the Code. See
"Federal Income Tax Information" for a discussion of the tax treatment of
non-statutory stock options.
PURPOSE
The Directors' Plan was adopted to provide a means by which
Non-Employee Directors will be given an opportunity to purchase stock of the
Company, to assist in retaining the services of such persons as members of the
Board of Directors of the Company and to provide incentives for such persons to
exert maximum efforts on behalf of the Company.
ADMINISTRATION
The Directors' Plan is administered by the Board of Directors. The
Board has the power to construe and interpret the Directors' Plan. The Board of
Directors is authorized to delegate administration of the Directors' Plan to a
committee composed of not fewer than two members of the Board. The Board has
delegated administration of the Directors' Plan to the Compensation Committee of
the Board. As used herein with respect to the Directors' Plan, the "Board"
refers to the Compensation Committee as well as to the Board of Directors
itself.
ELIGIBILITY
Stock options will be granted under the Directors' Plan only to
Non-Employee Directors.
NON-DISCRETIONARY GRANTS
As amended, the Directors' Plan provides for non-discretionary option
grants to Non-Employee Directors as follows: each person who is elected after
December 1, 1994 for the first time by the Board or stockholders of the Company
to serve as a Non-Employee Director and who has not previously served as a
member of the Board will, upon the date of such election, be granted an option
(on the terms and conditions set forth in the Directors' Plan) to purchase
twenty-five thousand (25,000) shares of the Company's Common Stock (hereinafter
referred to as an "Initial Election Option"). In addition, each person has who
previously served as a member of the Board (whether or not as a Non-Employee
Director) and who is re-elected after December 1, 1994 by the Board or
stockholders of the Company to serve as a Non-Employee Director will, upon the
date of such re-election, be granted an option (on the terms and conditions set
forth in the Directors' Plan) to purchase ten thousand (10,000) shares of the
Company's Common Stock (hereinafter referred to as a "Re-Election Option"). The
Board is considering whether to amend the Directors' Plan to increase the number
of shares subject to Initial Election Options as a result of the Hi/fn Spin-Off
to numbers not more than two (2) times their current levels.
STOCK SUBJECT TO THE DIRECTORS' PLAN
If options granted under the Directors' Plan expire or otherwise
terminate without being exercised, the Common Stock not purchased pursuant to
such options will again become available for issuance under the Directors' Plan.
18
<PAGE> 22
TERMS OF OPTION GRANTS
Exercise Price. The exercise price of options granted under the
Directors' Plan is equal to the fair market value of the Common Stock subject to
the option on the date of the grant. The exercise price of options granted under
the Directors' Plan must be paid in cash or exchanged for Common Stock of the
Company or a combination of both at the time the option is exercised.
Option Exercise. Options granted under the Directors' Plan are subject
to vesting as follows: Initial Election Options will vest in five equal
installments of 5,000 shares each, with the first such installment vesting
immediately prior to the first Annual Meeting of Stockholders after the date of
grant and each additional installment vesting immediately prior to the date of
each subsequent Annual Meeting of Stockholders of the Company, so long as the
optionee has, during the entire year prior to such vesting date, continuously
served as a Non-Employee Director of the Company or any affiliate of the
Company. Re-Election Options will vest in four equal installments of 2,500
shares each, with 2,500 shares vesting immediately prior to the date of each
Annual Meeting of Stockholders of the Company following the date of grant, so
long as the optionee has, during the entire year prior to such vesting date,
continuously served as a Non-Employee Director of the Company or any affiliate
of the Company.
An option granted under the Directors' Plan is not transferable except
by will or by the laws of descent and distribution, and is exercisable during
the lifetime of the person to whom the option is granted only by such person or
by his guardian or legal representative.
Term. The term of options under the Directors' Plan is ten years. An
optionee's right to exercise any options will terminate thirty days after such
optionee ceases to serve as a Non-Employee Director of the Company or any
affiliate of the Company, except where such cessation is caused by death or
disability, in which case such optionee's right to exercise options shall remain
exercisable for a total of twelve months following such cessation.
ADJUSTMENT PROVISIONS
The Directors' Plan provides that if any change is made in the stock
subject to the Directors' Plan, or subject to any option granted under the
Directors' Plan, (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, changes
in corporate structure or otherwise) the Directors' Plan and options outstanding
thereunder will be appropriately adjusted as to the class and maximum number of
shares subject to the Directors' Plan and the class, number of shares and price
per share of stock subject to such outstanding options.
EFFECT OF CERTAIN CORPORATE EVENTS
The Directors' Plan provides that in the event of (a) a dissolution or
liquidation of the Company, (b) a merger or consolidation in which the Company
is not the surviving corporation, (c) a reverse merger in which the Company is
the surviving corporation but the shares of the Company's Common Stock
outstanding immediately preceding the merger are converted by virtue of the
merger into other property, whether in the form of securities, cash or (d)
otherwise or any other capital reorganization in which more than 50% of the
shares of the Company entitled to vote are exchanged, then to the extent
permitted by applicable law, the time during which such options may be exercised
will be accelerated and the options terminated if not exercised prior to such
event.
DURATION, AMENDMENT AND TERMINATION
The Board may suspend or terminate the Directors' Plan without
stockholder approval or ratification at any time or from time to time. Unless
sooner terminated, the Directors' Plan will terminate on March 12, 2002.
The Board may also amend the Directors' Plan at any time or from time
to time. However, the Board may not amend the Directors' Plan more than once
every six months, with respect to the provisions of the Directors' Plan which
relate to the amount, price and timing of grants, other than to comport with
changes in the Code, the
19
<PAGE> 23
Employee Retirement Income Security Act of 1974, or the rules thereunder. Except
with respect to certain amendments relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve months before or after the adoption of the amendment,
where the amendment will (a) increase the number of shares reserved for options
under the Directors' Plan, (b) modify the requirements as to eligibility for
participation in the Directors' Plan (to the extent such modification requires
stockholder approval in order for the Plan to comply with the requirements of
Rule 16b-3) or (c) modify the Directors' Plan in any other way if such
modification requires stockholder approval in order for the Directors' Plan to
comply with the requirements of Rule 16b-3.
FEDERAL INCOME TAX INFORMATION
Non-Statutory Stock Options. Options granted under the Directors' Plan
are intended to be treated as non-statutory stock options and are not intended
to be eligible for the favorable federal income tax treatment accorded
"incentive stock options" under the Code. Non-statutory stock options granted
under the Directors' Plan generally have the following federal income tax
consequences:
There are no tax consequences to the optionee or the Company by reason
of the grant of a non-statutory stock option. Upon exercise of a non-statutory
stock option, the optionee will recognize taxable ordinary income equal to the
excess of the stock's fair market value on the date of exercise over the option
exercise price. Subject to the requirement of reasonableness, the provisions of
Section 162(m) of the Code and the satisfaction of a reporting obligation, the
Company generally will be entitled to a business expense deduction equal to the
taxable ordinary income realized by the optionee. Upon disposition of the stock,
the optionee will recognize a capital gain or loss equal to the difference
between the selling price and the sum of the amount paid for such stock plus any
amount recognized as ordinary income upon exercise of the option. Such gain or
loss will be long-term or short-term depending on whether the stock was held for
more than one year.
Other Tax Consequences. The foregoing discussion is intended to be a
general summary only of the federal income tax aspects of options granted under
the Directors' Plan. Tax consequences may vary depending on the particular
circumstances at hand. In addition, administrative and judicial interpretations
of the application of the federal income tax laws are subject to change.
Furthermore, no information is given with respect to state or local taxes that
may be applicable. Participants in the Directors' Plan who are residents of or
are employed in a country other than the United States may be subject to
taxation in accordance with the tax laws of that particular country in addition
to or in lieu of United States federal income taxes.
INFORMATION REGARDING OPTION GRANTS
As of January 14, 1999, options to purchase 598,730 shares (adjusted to
account for the Hi/fn Spin-Off) of Common Stock have been granted and are
outstanding under the Directors' Plan. In January 1999, Mr. Schleider and Mr.
Smith received Initial Election Options to purchase an aggregate of 50,000
shares. Subject to the re-election by the stockholders of Mr. Clow, Dr. Johnson,
Mr. Perez, Mr. Schleider, and Mr. Smith to serve on the Board at the Annual
Meeting as provided for under Proposal 1 and to any amendment to the terms of
the Directors' Plan as referred to under "Non-Discretionary Grants" above, the
Company expects that options to purchase an aggregate of 50,000 shares of Common
Stock will be granted to such persons pursuant to the Directors' Plan as of the
date of the Annual Meeting.
PROPOSAL 5
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending September 30, 1999
and has further directed that management submit the selection of independent
accountants for ratification by the stockholders at the Annual Meeting.
PricewaterhouseCoopers LLP has audited the Company's financial statements since
1989. Representatives of PricewaterhouseCoopers LLP are expected to be present
at the Annual Meeting, will have an opportunity to make a statement if they so
desire and will be available to respond to appropriate questions.
20
<PAGE> 24
Stockholder ratification of the selection of PricewaterhouseCoopers LLP
as the Company's independent public accountants is not required by the Company's
Bylaws or otherwise. However, the Board is submitting the selection of
PricewaterhouseCoopers LLP to the stockholders for ratification as a matter of
good corporate practice. If the stockholders fail to ratify the selection, the
Audit Committee of the Board will reconsider whether or not to retain that firm.
Even if the selection is ratified, the Audit Committee and the Board in their
discretion may direct the appointment of a different independent accounting firm
at any time during the year if they determine that such a change would be in the
best interests of the Company and its stockholders.
The affirmative vote of the holders of a majority of the shares present
in person or represented by proxy and entitled to vote at the Annual Meeting
will be required to ratify the selection of PricewaterhouseCoopers LLP.
THE BOARD OF DIRECTORS RECOMMENDS
A VOTE IN FAVOR OF PROPOSAL 5.
21
<PAGE> 25
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
ownership of the Company's Common Stock as of December 31, 1998 by: (i) each
nominee for director and each other current director of the Company, (ii) each
of the executive officers named in the Summary Compensation Table below under
the heading "Executive Compensation;" (iii) all executive officers and directors
of the Company as a group; and (iv) all those known by the Company to be
beneficial owners of more than five percent of its Common Stock.
<TABLE>
<CAPTION>
NUMBER OF PERCENTAGE
SHARES BENEFICIALLY OWNED (1)
<S> <C> <C>
Microsoft Corporation..................................... 2,458,746 10.4%
One Microsoft Way
Redmond, WA 98052-6399
Gary W. Clow (2).......................................... 2,744,641 11.0%
Robert W. Johnson (3)..................................... 1,872,523 7.9%
Douglas L. Whiting (4).................................... 1,599,167 6.7%
John R. Witzel (5)........................................ 915,016 3.8%
Peter D. Schleider (6).................................... 460,600 1.9%
John T. Ticer (7)......................................... 404,681 1.7%
Antonio Perez (8)......................................... 57,762 *
Corey M. Smith............................................ 74,000 *
Charles H. Gaylord, Jr. (9) .............................. 172,733 *
James T. Nicol (10) ...................................... 211,988 *
James M. Priest (11)...................................... 84,893 *
All directors and officers as a group (12 persons) ....... 8,721,006 32.5%
</TABLE>
- ----------
* Less than one percent.
(1) This table is based upon information supplied by officers, directors and
principal stockholders and Schedules 13D and 13G, if any, filed with the
Commission. Unless otherwise indicated in the footnotes to this table and
subject to community property and marital property laws where applicable,
each of the stockholders named in this table has sole voting and
investment power with respect to the shares indicated as beneficially
owned and has a business address of Stac Software, Inc., 12636 High Bluff
Drive, 4th Floor, San Diego, California 92130-2093. Applicable percentages
are based on 23,673,170 shares outstanding on December 31, 1998, adjusted
as required by rules promulgated by the Commission; and also reflect an
adjustment to Company options outstanding as of December 16, 1998 held by
optionees to account for the Hi/fn Spin-Off. See "Executive Compensation -
Effect of Spin-Off of Hi/fn on Company's Stock Options.
22
<PAGE> 26
(2) Includes 100,100 shares held by the Cristina Clow Trust and 100,000 shares
held by the Andrew Clow Trust, of which Mr. Clow is a co-trustee and of
which Mr. Clow disclaims beneficial ownership, and 1,234,641 shares
issuable upon exercise of options held by Mr. Clow that are exercisable
within 60 days of December 31, 1998.
(3) Includes 1,759,000 shares held by the Robert W. Johnson Revocable Trust,
of which Dr. Johnson is Trustee and 105,523 shares issuable upon exercise
of options held by Dr. Johnson that are exercisable within 60 days of
December 31, 1998.
(4) Includes 1,382,500 shares held by the Whiting Family Trust, of which Dr.
Whiting serves as Trustee and 216,667 shares issuable upon exercise of
options held by Dr. Whiting that are exercisable within 60 days of
December 31, 1998.
(5) Includes 707,016 shares issuable upon exercise of options held by Mr.
Witzel that are exercisable within 60 days of December 31, 1998. Mr.
Witzel resigned from the Company, effective the close of business on
January 4, 1999.
(6) Includes 460,600 shares held of record by the RKB Capital, L.P., of which
Mr. Schleider is the general partner.
(7) Includes 404,681 shares issuable upon exercise of options held by Mr.
Ticer that are exercisable within 60 days of December 31, 1998.
(8) Includes 52,762 shares issuable upon exercise of options held by Mr. Perez
that are exercisable within 60 days of December 31, 1998.
(9) Includes 25,000 shares held of record by the Gaylord Family Trust UTD
12/30/93, of which Mr. Gaylord serves as co-trustee and 147,733 shares
issuable upon exercise of options held by Mr. Gaylord that are exercisable
within 60 days of December 31, 1998.
(10) Includes 211,048 shares issuable upon exercise of options held by Mr.
Nicol that are exercisable within 60 days of December 31, 1998.
(11) Includes 84,418 shares issuable upon exercise of options held by Mr.
Priest that are exercisable within 60 days of December 31, 1998. Mr.
Priest resigned from the Company, effective the close of business on
December 31, 1998.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's directors and executive officers, and persons who own
more than ten percent of a registered class of the Company's equity securities,
to file with the Commission initial reports of ownership and reports of changes
in ownership of Common Stock and other equity securities of the Company.
Officers, directors and greater than ten percent stockholders are required by
Commission regulation to furnish the Company with copies of all Section 16(a)
forms they file.
To the best of the Company's knowledge, based solely on a review of the
copies of such reports furnished to the Company and written representations that
no other reports were required, during the fiscal year ended September 30, 1998,
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten percent beneficial owners were complied with.
23
<PAGE> 27
EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Non-employee directors of the Company ("Non-Employee Directors") are
compensated for their services on the Board in accordance with the following
policy: Each Non-Employee Director is paid an annual retainer of $4,000 plus an
additional sum of $1,000 for each meeting of the Board attended in person (other
than by telephone) by such director. In addition, each Non-Employee Director
that is a member of one or more committees of the Board is paid an additional
amount equal to $500 for each such committee meeting attended in person (other
than by telephone) by such director where such meeting is held on a date other
than the date of any meeting of the Board. In the fiscal year ended September
30, 1998, the total compensation paid to Non-Employee Directors was $32,000.
The members of the Board of Directors are eligible for reimbursement
for their expenses incurred in connection with attendance at Board meetings in
accordance with Company policy.
Non-Employee Directors are eligible to receive grants under the
Director's Plan, as described in Proposal 4. On December 16, 1998, the exercises
price and the number of outstanding options to purchase Common Stock held by
directors of the Company were adjusted as a result of the Hi/fn Spin-Off. See
"-Effect of Hi/fn Spin-Off on Company's Common Stock Options." During the last
fiscal year, the Company granted options covering 42,210 shares to each
Non-Employee Director of the Company (for a total of 126,630 shares) at an
exercise price per share of $1.18 (as adjusted for the Hi/fn Spin-Off), the fair
market value of the Company's common stock on the date of grant. As of September
30, 1998, options to purchase 548,730 shares (as adjusted for the Hi/fn
Spin-Off) have been granted and are outstanding under the Directors' Plan, net
of cancellations, and options to purchase 5,000 shares have been exercised under
the Directors' Plan.
24
<PAGE> 28
COMPENSATION OF EXECUTIVE OFFICERS
SUMMARY OF COMPENSATION
The following table shows, for the fiscal years ended September 30,
1998, September 30, 1997 and September 30, 1996, compensation awarded or paid
to, or earned by the Company's Chief Executive Officer and its other four most
highly compensated executive officers at September 30, 1998 (the "Named
Executive Officers"). All options listed below reflect the Hi/fn Spin-Off:
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION (1) AWARDS
-------------------------------------- --------------
SECURITIES
UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS(2)
- ------------------------------------------------- ------ -------- ------- --------------
<S> <C> <C> <C> <C>
Gary W. Clow (3) ................................ 1998 $185,500 $29,355 --
Chief Executive Officer 1997 $175,000 $16,188 1,181,880
1996 $175,000 $6,563 -
John T. Ticer (4)................................ 1998 $210,000 $54,653 --
President and Chief Operating Officer 1997 $126,923 $34,654 844,200
1996 -- -- --
James T. Nicol (5)............................... 1998 $148,400 $56,131 --
Vice President of Products 1997 $140,000 $15,920 422,100
1996 $20,833 -- --
James M. Priest (6).............................. 1998 $140,400 $39,065 --
Vice President of Sales and Marketing 1997 92,500 $10,135 337,680
1996 -- -- --
John R. Witzel (7)............................... 1998 $145,600 $26,681 --
Vice President of Finance, Chief Financial 1997 $140,000 $4,063 506,520
Officer and Secretary 1996 $125,000 $1,032 --
</TABLE>
- -------------
(1) As permitted by rules established by the Commission, no amounts are shown
with respect to certain "perquisites" where such amounts do not exceed the
lesser of 10% of bonus plan salary or $50,000.
(2) Options of Messrs. Ticer, Nicol and Priest were repriced in fiscal 1997
and are treated as new grants. Previously granted options were cancelled
concurrently with the repricing. The Company has not issued any stock
appreciation rights (SARs).
(3) Mr. Clow resigned as Chief Executive Officer of the Company in January
1999.
(4) Mr. Ticer joined the Company in February 1997. He was also paid $79,972 in
relocation expenses and associated income taxes in fiscal 1997. Mr. Ticer
resigned as Chief Operating Officer and was appointed Chief Executive
Officer of the Company in January 1999.
(5) Mr. Nicol joined the Company in August 1996. He was also paid $83,875 in
relocation expenses and associated income taxes in fiscal 1996.
25
<PAGE> 29
(6) Mr. Priest joined the Company in December 1996. He was also paid $92,338
in relocation expenses and associated income taxes in fiscal 1996. Mr.
Priest resigned as Vice President of Sales and Marketing in December 1998.
(7) Mr. Witzel resigned as Vice President of Finance, Chief Financial Officer
and Secretary of the Company in January 1999.
STOCK OPTION GRANTS AND EXERCISES
From time to time the Company grants options to its executive officers
under its 1992 Stock Option Plan. As of December 31, 1998, options to purchase a
total of 9,088,978 shares had been granted and were outstanding under the 1992
Plan, options to purchase 1,021,455 shares had been exercised under the 1992
Plan and 1,545,269 shares remained available for future option grants under the
1992 Plan, as adjusted for the Hi/fn Spin-Off. See - Effect of Hi/fn Spin-Off on
Company's Stock Options."
For the fiscal year ended September 30, 1998, no options were granted
to any Named Executive Officers. The following table shows certain information
regarding options exercised by, and held at year end by, the Named Executive
Officers.
26
<PAGE> 30
AGGREGATED OPTION EXERCISES IN FISCAL 1998
AND 1998 FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
SHARES SEPTEMBER 30, 1998(2) SEPTEMBER 30, 1998(3)
ACQUIRED ON VALUE ---------------------------------- -------------------------------------
NAME EXERCISE(#) REALIZED($)(1) EXERCISABLE (#) UNEXERCISABLE (#) EXERCISABLE ($) UNEXERCISABLE ($)
- ---- ----------- -------------- --------------- ----------------- --------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Gary W. Clow -- -- 1,160,773 590,943 33,750 --
James T. Nicol -- -- 175,873 246,227 -- --
John T. Ticer -- -- 327,127 517,073 -- --
James M. Priest -- -- 133,663 204,017 -- --
John R. Witzel 113,000 456,375 675,358 253,262 25,000 --
</TABLE>
- ----------
(1) Represents the fair market value of the underlying shares on the date of
exercise less the exercise price. For purposes of this table, "fair market
value" is determined based on the average of the highest and lowest
selling prices on the applicable date as reported on the Nasdaq National
Market System. Shares acquired are adjusted to reflect the Hi/fn Spin-Off.
(2) Includes both "in-the-money" and "out-of-the-money" options. Exercisable
and Unexercisable options reflect the Hi/fn Spin-Off.
(3) Represents the fair market value per share of the underlying shares on the
last day of the fiscal year ($3.00), less the exercise or base price,
based on actual exercisable and unexercisable options, prior to the Hi/fn
Spin-Off.
AGREEMENTS WITH EXECUTIVE OFFICERS
The Company has entered into agreements with certain of the Company's
officers (each hereinafter referred to as "Executive"), including its Named
Executive Officers, in order to ensure Executive has an opportunity to acquire
and/or maintain an equity interest in the Company as an incentive for Executive
to participate actively in the affairs and maximize the value of the Company,
without distraction arising from the possibility of a change in control of Stac.
The terms of the agreements provide that, in the event of a Change in Control
(as defined in the agreements), and the Involuntary Termination (as defined in
the agreements) of Executive's employment at any time during the period
beginning sixty (60) days prior to such Change in Control and ending thirteen
(13) months following such Change of Control, (i) fifty percent (50%) of those
unvested options or other rights to purchase shares of the Company's capital
stock then held by Executive shall automatically become fully vested and (ii)
the Company's repurchase right automatically lapses with respect to fifty
percent (50%) of the shares of the Company's stock then held by Executive which
are subject to the repurchase right.
EFFECT OF HI/FN SPIN-OFF ON COMPANY'S STOCK OPTIONS
The Company completed the Hi/fn Spin-Off on December 16, 1998. In
connection with the Hi/fn Spin-Off, holders of the Company's Common Stock
received a dividend of one share of Common Stock of Hi/fn for every 3.9455
shares of Common Stock of the Company held by them as of that date. As a result
of the Hi/fn Spin-Off, the number of shares subject to, and the exercise prices
of, the then outstanding options to purchase Common Stock of the Company held by
each current and former director, employee and consultant of the Company on the
effective date of the Hi/fn Spin-Off (the "Company Options"), were adjusted in a
manner designed to preserve the economic value of the Company Options
outstanding prior to the Hi/fn Spin-Off. References and calculations herein
related to shares subject to outstanding options and relevant exercise prices
reflect the Hi/fn Spin-Off.
27
<PAGE> 31
Additional information regarding the Hi/fn Spin-Off is set forth in the
Registration Statement on Form 10 filed by Hi/fn with the Commission in
connection with the Hi/fn Spin-Off.
28
<PAGE> 32
REPORT OF THE COMPENSATION COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION(1)
OVERVIEW AND PHILOSOPHY
Stac's Compensation Committee of the Board of Directors (the
"Committee") is currently composed of two (2) outside directors, Messrs. Gaylord
and Perez. As of the Annual Meeting Date, Mr. Clow and Mr. Smith will replace
Mr. Gaylord and Mr. Perez on the Committee. Among other things, the Committee
reviews and approves annual executive officer compensation; provided, however,
with respect to the Company Chief Executive Officer, the Committee makes a
recommendation to the Board of Directors and the Chief Executive Officer's
compensation is approved by the Board of Directors. In general, the compensation
policies adopted by the Committee are designed to (i) attract and retain
executives capable of leading the Company to meet its business objectives and
(ii) motivate the Company's executives to enhance long-term stockholder value.
EXECUTIVE OFFICER COMPENSATION
The Company's executive officer compensation program is comprised of
base salary, annual cash incentive compensation in the form of a bonus and
long-term incentive compensation in the form of stock option grants.
BASE SALARY
In establishing base salaries, the Committee first considers a number
of surveys and compensation levels at comparably sized companies in comparable
industries, including companies in the software industries. Each survey is
weighted based on the Committee's determination of the comparability to Stac of
the companies within the survey. The companies included in the surveys are not
necessarily the same as the companies included in the market indices included in
the performance graph in this Proxy Statement. Although the compensation surveys
referred to above and the market indices included in the performance graph are
broad and include companies in related industries, the surveys and indices were
created for difference purposes and accordingly are not compatible.
Based on the data generated in the surveys, the Committee then
subjectively sets a target base salary level applicable to all executive
officers. The Committee then subjectively considers the level of responsibility,
experience and contributions of each executive officer. The Committee then sets
each officer's base salary taking into account the target salary and the
Committee's evaluation of individual performance. For fiscal 1998, executive
officer base salaries were generally below the median base salary levels
determined through the surveys.
ANNUAL CASH INCENTIVE BONUS
The Company pays bonuses to its executive officers based primarily on
the achievement of revenue goals and meeting specific management objectives
established by the Committee prior to each fiscal quarter. In considering the
establishment revenue goals and management objectives for fiscal 1998, the
Committee considered, among other things, the Company's revenue growth and
profitability as compared to internal targets, comparable companies and data
regarding non-salary cash compensation obtained from the surveys referred to
above. In total, bonuses paid to executive officers during fiscal 1998 were
below the median bonus levels paid by comparable companies as determined through
the surveys referred to above.
- ----------
(1) The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing of
the Company under the Securities Act of 1933 as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date hereof
and irrespective of any general incorporation language in any such filing.
29
<PAGE> 33
STOCK OPTION GRANTS
The Company grants stock options to its executive officers in order to
provide long-term incentives and align executive officers and stockholder
long-term interests by creating a direct link between executive compensation and
stockholder return. Stock options are granted at an option price equal to the
fair market value of the Company's Common Stock on the date of the grant. In
order to facilitate long-term incentives through the option grants, options are
generally subject to ratable vesting over three to five years and are
exercisable for ten years.
Executive officer awards are subjectively determined by the Committee
after considering stock option grant data taken from the compensation surveys
referred to above, as well as the level of responsibility, experience and
contributions of each executive officer. In determining the size of individual
grants, the Committee also considers the number of shares subject to the options
previously granted to each executive officer, including the number of such
shares that have vested and remain exercisable and shares that remain unvested.
Section 162(m) of the Internal Revenue Code (the "Code") limits the
Company to a deduction for federal income tax purposes of no more than $1
million of compensation paid to certain Named Executive Officers in a taxable
year. Compensation above $1 million may be deducted if it is "performance-based
compensation" within the meaning of the Code. The Compensation Committee has
determined that stock options granted under the Company's 1992 Stock Option Plan
with an exercise price at least equal to the fair market value of the Company's
common stock on the date of grant shall be treated as "performance-based
compensation."
CHIEF EXECUTIVE OFFICER SALARY
The Committee considers with particular care the compensation of the
Company's Chief Executive Officer, and recommends for Board approval, the amount
of such compensation. For fiscal 1998, the Company's Chief Executive Officer was
Gary W. Clow. Mr. Clow's compensation for the fiscal year ended September 30,
1998 was determined based on the factors discussed above, including the
completion of the Hi/fn Spin-Off and was set at $185,000, which was an increase
of 6% from his salary for the previous year. As described above, he was paid a
bonus of $29,355 compared to a bonus of $16,188 paid in the prior year.
COMPENSATION COMMITTEE
Charles H. Gaylord, Jr.
Antonio Perez
30
<PAGE> 34
PERFORMANCE MEASUREMENT COMPARISON
The following graph compares total stockholder returns of the Company
for the five years since September 30, 1993 to two indices: The Nasdaq CRSP
Total Return Index for the Nasdaq Stock Market (U.S. companies) (the
"Nasdaq-US") and the Nasdaq CRSP Total Return Index for Computer Software Stocks
(SIC 737) (the "Nasdaq-Industry"). The total return for the Company's stock and
for each index assumes the reinvestment of dividends, although dividends have
never been declared on the Company's stock, and is based on the returns of the
component companies weighted according to their capitalization as of the end of
each quarterly period. The Nasdaq-US tracks the aggregate price performance of
all equity securities of U.S. companies traded on the Nasdaq National Market
(the "NNM") and the Nasdaq SmallCap Market. The Nasdaq-Industry tracks the
aggregate price performance of equity securities of computer software companies
traded on the NNM. The Company's Common Stock is traded on the NNM and is a
component of both the Nasdaq-US and the Nasdaq-Industry.2
COMPARISON OF CUMULATIVE TOTAL RETURN ON INVESTMENT SINCE
SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
INDEX VALUES ANNUAL VALUES
(A) (B) (C)
(B) (C) NASDAQ NASDAQ
NASDAQ NASDAQ U.S. COS. IND. INDEX
CLOSE ON DATE: STAC U.S. DOMESTIC COMP & DP STAC COS. INDEX (SIC 737)
- -------------- ------- ------------ --------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
9/30/93 $2.8750 245.043 404.818 $100.00 $100.00 $100.00
12/31/93 $3.7500 249.861 406.888 $130.43 $101.97 $100.51
3/31/94 $5.7500 239.36 412.647 $200.00 $ 97.68 $101.93
6/30/94 $6.6250 228.169 403.803 $230.43 $ 93.11 $ 99.75
9/30/94 $5.3125 247.065 449.579 $184.78 $100.83 $111.06
12/30/94 $5.1250 244.244 494.138 $178.26 $ 99.67 $122.06
3/31/95 $5.7500 266.298 556.204 $200.00 $108.67 $137.40
6/30/95 $7.3750 304.608 659.257 $256.52 $124.31 $162.85
9/29/95 $9.3750 341.299 720.131 $326.09 $139.28 $177.89
12/29/95 $14.3750 345.448 752.437 $500.00 $140.97 $185.87
3/29/96 $10.5000 361.546 787.687 $365.22 $147.54 $194.58
6/28/96 $11.2500 391.052 875.596 $391.30 $159.59 $216.29
9/30/96 $8.0000 404.903 893.117 $278.26 $165.24 $220.62
12/31/96 $6.6250 424.801 928.692 $230.43 $173.38 $229.41
3/31/97 $4.7500 401.759 862.025 $165.22 $163.95 $212.94
6/30/97 $3.5630 475.401 1105.348 $123.93 $194.01 $273.05
9/30/97 $4.7500 555.791 1208.838 $165.22 $226.81 $298.61
12/31/97 $4.6250 521.177 1140.874 $160.87 $212.69 $281.82
3/31/98 $4.8130 609.655 1507.119 $167.41 $248.80 $372.30
6/30/98 $4.3130 627.267 1672.567 $150.02 $255.98 $413.17
9/30/98 $3.0000 567.866 1576.629 $104.35 $231.74 $389.47
-------------------------------
Check sum 8052.614 17818.394
===============================
x x
</TABLE>
(a) - Stac
(b) - NASDAQ U.S. Cos. Index
(c) - NASDAQ Ind. Index (SIC 737)
[PERFORMANCE GRAPH]
Stac's closing stock price on September 30, 1998, which was prior to
the Hi/fn Spin-Off and adjustment to the Common Stock per share price as a
result thereof, was $3.00 per share. The last sales price for the Company's
Common Stock as reported by Nasdaq on December 31, 1998 was $1.375, which was
following the Hi/fn Spin-Off. Historical stock price performance is not
necessarily indicative of future price performance, particularly in light of the
Hi/fn Spin-Off.
- ----------
1 The material in this report is not "soliciting material," is not deemed
filed with the SEC and is not to be incorporated by reference in any filing of
the Company under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, whether made before or after the date hereof
and irrespective of any general incorporation language in any such filing.
31
<PAGE> 35
CERTAIN TRANSACTIONS
The Company's policy is that it will not make loans or enter into other
transactions with directors, officers, or affiliates unless such loans or
transactions are approved by a majority of the Company's disinterested directors
and may reasonably be expected to benefit the Company.
The Company's Bylaws provide that the Company will indemnify its
directors and may indemnify its officers, employees, and other agents to the
fullest extent permitted by law. The Company believes that indemnification under
its Bylaws covers at least negligence and gross negligence by indemnified
parties, and may require the Company to advance litigation expenses in the case
of stockholder derivative actions or other actions, against an undertaking by
the indemnified party to repay such advances if it is ultimately determined that
the indemnified party is not entitled to indemnification.
In addition, the Company's Certificate of Incorporation provides that
to the fullest extent permitted by Delaware law, the Company's directors will
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to the Company and its stockholders. This provision in the Certificate
of Incorporation does not eliminate the duty of care, and in appropriate
circumstances equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Each director
will continue to be subject to liability for breach of the director's duty of
loyalty to the Company, for acts or omissions not in good faith or involving
intentional misconduct or knowing violations of law, for acts or omissions that
the director believes to be contrary to the best interests of the Company or its
stockholders, for any transaction from which the director derived an improper
personal benefit, for acts or omissions involving a reckless disregard for the
director's duty to the Company or its stockholders when the director was aware
or should have been aware of a risk of serious injury to the Company or its
stockholders, for acts or omissions that constitute an unexcused pattern of
inattention that amounts to an abdication of the director's duty to the Company
or its stockholders, for improper transactions between the director and the
Company, and for improper distributions to stockholders and loans to directors
and officers. This provision also does not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
The Company has entered into indemnity agreements with certain officers
and directors which provide, among other things, that the Company will indemnify
such officer or director, under the circumstances and to the extent provided for
therein, for expenses, damages, judgments, fines and settlements he may be
required to pay in actions or proceedings which he is or may be made a party by
reason of his position as a director, officer or other agent of the Company, and
otherwise to the full extent permitted under Delaware law and the Company's
Bylaws.
The Company maintains insurance policies covering officers and
directors under which the insurers agree to pay, subject to certain exclusions,
including certain violations of securities laws, for any claim made against the
directors and officers of the Company for a wrongful act that they may become
legally obligated to pay or for which the Company is required to indemnify the
officers or directors. The Company believes that its Certificate of
Incorporation and Bylaw provisions, indemnification agreements and such
insurance policies are necessary to attract and retain qualified person as
directors and officers.
At present, there is no pending litigation or proceeding involving a
director, officer, employee or other agent of the Company to which
indemnification is being sought nor is the Company aware of any threatened
litigation that may result in claims for indemnification by any director,
officer, employee or other agent.
The Company has entered into agreements with certain of the Company's
officers (each hereinafter referred to as "Executive"), including its Named
Executive Officers, in order to ensure Executive has an opportunity to acquire
and/or maintain an equity interest in the Company as an incentive for Executive
to participate actively in the affairs and maximize the value of the Company,
without distraction arising from the possibility of a change in control of Stac.
The terms of the agreements provide that, in the event of a Change in Control
(as defined in the agreements), and the Involuntary Termination (as defined in
the agreements) of Executive's employment at any time during the period
beginning sixty (60) days prior to such Change in Control and ending thirteen
(13) months following such Change of Control,
32
<PAGE> 36
(i) fifty percent (50%) of those unvested options or other rights to purchase
shares of the Company's capital stock then held by Executive shall automatically
become fully vested and (ii) the Company's repurchase right automatically lapses
with respect to fifty percent (50%) of the shares of the Company's stock then
held by Executive which are subject to the repurchase right.
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented
for consideration at the Annual Meeting. If other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote the shares represented thereby on such matters in accordance with
their best judgment.
By Order of the Board of Directors
Clifford L. Flowers
Secretary
February 8, 1999
A copy of the Company's Annual Report to the Securities and Exchange Commission
on Form 10-K for the fiscal year ended September 30, 1998 is available without
charge upon written request to the Corporate Secretary, Stac Software, Inc.,
12636 High Bluff Drive, 4th Floor, San Diego, California 92130-2093.
33
<PAGE> 37
APPENDIX A-1
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF STAC SOFTWARE, INC.
Stac Software, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: The name of the Corporation is Stac Software, Inc.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is February 14,
1996.
THIRD: The Board of Directors of the Corporation, acting in
accordance with the provision of Sections 141 and 242 of the General Corporation
Law of the State of Delaware adopted resolutions to amend paragraph A of Article
IV of the Certificate of Incorporation of the Corporation to read in its
entirety as follows:
"This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
one hundred ten million (110,000,000) shares. One hundred million
(100,000,000) shares shall be Common Stock, each having a par value of
one-tenth of one cent ($.001). Ten million (10,000,000) shares shall be
Preferred Stock, each having a par value of one-tenth of one cent
($.001). Effective as of the close of business on the date this
Certificate of Amendment of Certificate of Incorporation is filed with
the Secretary of State of the State of Delaware (the "Effective Time"),
each two (2) shares of the Corporation's Common Stock, par value $.001
per share, issued and outstanding shall, automatically and without any
action on the part of the respective holders thereof, be converted into
one (1) share of Common Stock, par value $.001 per share, of the
Corporation. No fractional shares shall be issued and, in lieu thereof,
any holder of less than one share of Common Stock entitled to receive
cash for such holder's fractional share based upon the closing sales
price of the Corporation's Common Stock as reported on the Nasdaq
National Market as of the date of the Effective Time."
FOURTH: This Certificate of Amendment of Certificate of Incorporation
was submitted to the stockholders of the Corporation and was duly approved by
the required vote of stockholders of the Corporation in accordance with Sections
228 and 242 of the Delaware General Corporation Law. The total number of
outstanding shares entitled to vote or consent to this Amendment was 23,680,670
shares of Common Stock. A majority of the outstanding shares of Common Stock,
voting together as a single class, voted in favor of this Certificate of
Amendment of Certificate of Incorporation. The vote required was a majority of
the outstanding shares of Common Stock, voting together as a single class.
<PAGE> 38
IN WITNESS WHEREOF, Stac Software, Inc. has caused this Certificate of
Amendment to be signed by its President and Chief Executive Officer as of
___________, ____.
STAC SOFTWARE, INC.
________________________________________
John T. Ticer
President and Chief Executive Officer
<PAGE> 39
APPENDIX A-2
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF STAC SOFTWARE, INC.
Stac Software, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: The name of the Corporation is Stac Software, Inc.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is February 14,
1996.
THIRD: The Board of Directors of the Corporation, acting in
accordance with the provision of Sections 141 and 242 of the General Corporation
Law of the State of Delaware adopted resolutions to amend paragraph A of Article
IV of the Certificate of Incorporation of the Corporation to read in its
entirety as follows:
"This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
one hundred ten million (110,000,000) shares. One hundred million
(100,000,000) shares shall be Common Stock, each having a par value of
one-tenth of one cent ($.001). Ten million (10,000,000) shares shall be
Preferred Stock, each having a par value of one-tenth of one cent
($.001). Effective as of the close of business on the date this
Certificate of Amendment of Certificate of Incorporation is filed with
the Secretary of State of the State of Delaware (the "Effective Time"),
each two and one-half (2.5) shares of the Corporation's Common Stock,
par value $.001 per share, issued and outstanding shall, automatically
and without any action on the part of the respective holders thereof,
be converted into one (1) share of Common Stock, par value $.001 per
share, of the Corporation. No fractional shares shall be issued and, in
lieu thereof, any holder of less than one share of Common Stock
entitled to receive cash for such holder's fractional share based upon
the closing sales price of the Corporation's Common Stock as reported
on the Nasdaq National Market as of the date of the Effective Time."
FOURTH: This Certificate of Amendment of Certificate of Incorporation
was submitted to the stockholders of the Corporation and was duly approved by
the required vote of stockholders of the Corporation in accordance with Sections
228 and 242 of the Delaware General Corporation Law. The total number of
outstanding shares entitled to vote or consent to this Amendment was 23,680,670
shares of Common Stock. A majority of the outstanding shares of Common Stock,
voting together as a single class, voted in favor of this Certificate of
Amendment of Certificate of Incorporation. The vote required was a majority of
the outstanding shares of Common Stock, voting together as a single class.
<PAGE> 40
IN WITNESS WHEREOF, Stac Software, Inc. has caused this Certificate of
Amendment to be signed by its President and Chief Executive Officer as of
___________, _____.
STAC SOFTWARE, INC.
________________________________________
John T. Ticer
President and Chief Executive Officer
<PAGE> 41
APPENDIX A-3
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF STAC SOFTWARE, INC.
Stac Software, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: The name of the Corporation is Stac Software, Inc.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is February 14,
1996.
THIRD: The Board of Directors of the Corporation, acting in
accordance with the provision of Sections 141 and 242 of the General Corporation
Law of the State of Delaware adopted resolutions to amend paragraph A of Article
IV of the Certificate of Incorporation of the Corporation to read in its
entirety as follows:
"This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
one hundred ten million (110,000,000) shares. One hundred million
(100,000,000) shares shall be Common Stock, each having a par value of
one-tenth of one cent ($.001). Ten million (10,000,000) shares shall be
Preferred Stock, each having a par value of one-tenth of one cent
($.001). Effective as of the close of business on the date this
Certificate of Amendment of Certificate of Incorporation is filed with
the Secretary of State of the State of Delaware (the "Effective Time"),
each three (3) shares of the Corporation's Common Stock, par value
$.001 per share, issued and outstanding shall, automatically and
without any action on the part of the respective holders thereof, be
converted into one (1) share of Common Stock, par value $.001 per
share, of the Corporation. No fractional shares shall be issued and, in
lieu thereof, any holder of less than one share of Common Stock
entitled to receive cash for such holder's fractional share based upon
the closing sales price of the Corporation's Common Stock as reported
on the Nasdaq National Market as of the date of the Effective Time."
FOURTH: This Certificate of Amendment of Certificate of Incorporation
was submitted to the stockholders of the Corporation and was duly approved by
the required vote of stockholders of the Corporation in accordance with Sections
228 and 242 of the Delaware General Corporation Law. The total number of
outstanding shares entitled to vote or consent to this Amendment was 23,680,670
shares of Common Stock. A majority of the outstanding shares of Common Stock,
voting together as a single class, voted in favor of this Certificate of
Amendment of Certificate of Incorporation. The vote required was a majority of
the outstanding shares of Common Stock, voting together as a single class.
<PAGE> 42
IN WITNESS WHEREOF, Stac Software, Inc. has caused this Certificate of
Amendment to be signed by its President and Chief Executive Officer as of
___________, _____.
STAC SOFTWARE, INC.
________________________________________
John T. Ticer
President and Chief Executive Officer
<PAGE> 43
APPENDIX A-4
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF STAC SOFTWARE, INC.
Stac Software, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: The name of the Corporation is Stac Software, Inc.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is February 14,
1996.
THIRD: The Board of Directors of the Corporation, acting in
accordance with the provision of Sections 141 and 242 of the General Corporation
Law of the State of Delaware adopted resolutions to amend paragraph A of Article
IV of the Certificate of Incorporation of the Corporation to read in its
entirety as follows:
"This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
one hundred ten million (110,000,000) shares. One hundred million
(100,000,000) shares shall be Common Stock, each having a par value of
one-tenth of one cent ($.001). Ten million (10,000,000) shares shall be
Preferred Stock, each having a par value of one-tenth of one cent
($.001). Effective as of the close of business on the date this
Certificate of Amendment of Certificate of Incorporation is filed with
the Secretary of State of the State of Delaware (the "Effective Time"),
each three and one-half (3.5) shares of the Corporation's Common Stock,
par value $.001 per share, issued and outstanding shall, automatically
and without any action on the part of the respective holders thereof,
be converted into one (1) share of Common Stock, par value $.001 per
share, of the Corporation. No fractional shares shall be issued and, in
lieu thereof, any holder of less than one share of Common Stock
entitled to receive cash for such holder's fractional share based upon
the closing sales price of the Corporation's Common Stock as reported
on the Nasdaq National Market as of the date of the Effective Time."
FOURTH: This Certificate of Amendment of Certificate of Incorporation
was submitted to the stockholders of the Corporation and was duly approved by
the required vote of stockholders of the Corporation in accordance with Sections
228 and 242 of the Delaware General Corporation Law. The total number of
outstanding shares entitled to vote or consent to this Amendment was 23,680,670
shares of Common Stock. A majority of the outstanding shares of Common Stock,
voting together as a single class, voted in favor of this Certificate of
Amendment of Certificate of Incorporation. The vote required was a majority of
the outstanding shares of Common Stock, voting together as a single class.
<PAGE> 44
IN WITNESS WHEREOF, Stac Software, Inc. has caused this Certificate of
Amendment to be signed by its President and Chief Executive Officer as of
___________, _____.
STAC SOFTWARE, INC.
________________________________________
John T. Ticer
President and Chief Executive Officer
<PAGE> 45
APPENDIX A-5
CERTIFICATE OF AMENDMENT
OF CERTIFICATE OF INCORPORATION
OF STAC SOFTWARE, INC.
Stac Software, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST: The name of the Corporation is Stac Software, Inc.
SECOND: The date on which the Corporation's original Certificate of
Incorporation was filed with the Delaware Secretary of State is February 14,
1996.
THIRD: The Board of Directors of the Corporation, acting in
accordance with the provision of Sections 141 and 242 of the General Corporation
Law of the State of Delaware adopted resolutions to amend paragraph A of Article
IV of the Certificate of Incorporation of the Corporation to read in its
entirety as follows:
"This corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The
total number of shares which the corporation is authorized to issue is
one hundred ten million (110,000,000) shares. One hundred million
(100,000,000) shares shall be Common Stock, each having a par value of
one-tenth of one cent ($.001). Ten million (10,000,000) shares shall be
Preferred Stock, each having a par value of one-tenth of one cent
($.001). Effective as of the close of business on the date this
Certificate of Amendment of Certificate of Incorporation is filed with
the Secretary of State of the State of Delaware (the "Effective Time"),
each four (4) shares of the Corporation's Common Stock, par value $.001
per share, issued and outstanding shall, automatically and without any
action on the part of the respective holders thereof, be converted into
one (1) share of Common Stock, par value $.001 per share, of the
Corporation. No fractional shares shall be issued and, in lieu thereof,
any holder of less than one share of Common Stock entitled to receive
cash for such holder's fractional share based upon the closing sales
price of the Corporation's Common Stock as reported on the Nasdaq
National Market as of the date of the Effective Time."
FOURTH: This Certificate of Amendment of Certificate of Incorporation
was submitted to the stockholders of the Corporation and was duly approved by
the required vote of stockholders of the Corporation in accordance with Sections
228 and 242 of the Delaware General Corporation Law. The total number of
outstanding shares entitled to vote or consent to this Amendment was 23,680,670
shares of Common Stock. A majority of the outstanding shares of Common Stock,
voting together as a single class, voted in favor of this Certificate of
Amendment of Certificate of Incorporation. The vote required was a majority of
the outstanding shares of Common Stock, voting together as a single class.
<PAGE> 46
IN WITNESS WHEREOF, Stac Software, Inc. has caused this Certificate of
Amendment to be signed by its President and Chief Executive Officer as of
___________, _____.
STAC SOFTWARE, INC.
________________________________________
John T. Ticer
President and Chief Executive Officer
<PAGE> 47
APPENDIX A-6
THE SHARE NUMBERS SET FORTH IN THE
1992 STOCK OPTION PLAN ARE
ADJUSTED TO REFLECT THE
TWO-FOR-ONE STOCK SPLIT APPROVED
BY THE BOARD OF DIRECTORS ON MARCH
13, 1992.
STAC ELECTRONICS
1992 STOCK OPTION PLAN
Adopted March 13, 1992
As Amended by the Board of Directors on January 18, 1996
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which
selected Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the
services of persons who are now Employees or Directors of or Consultants to the
Company, to secure and retain the services of new Employees, Directors and
Consultants, and to provide incentives for such persons to exert maximum efforts
for the success of the Company.
(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which responsibility
for administration of the Plan has been delegated pursuant to subsection 3(c),
be either Incentive Stock Options or Nonstatutory Stock Options. All Options
shall be separately designated Incentive Stock Options or Nonstatutory Stock
Options at the time of grant, and in such form as issued pursuant to section 6,
and a separate certificate or certificates will be issued for shares purchased
on exercise of each type of Option.
2. DEFINITIONS.
(a) "Affiliate" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "Company" means Stac Electronics, a California corporation.
(f) "Consultant" means any person, including an advisor, engaged
by the Company or an Affiliate to render services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "Continuous Status as an Employee, Director or Consultant"
means the employment or relationship as a Director or Consultant is not
interrupted or terminated by the Company or any Affiliate. The Board, in its
sole discretion, may determine whether Continuous Status as an Employee,
Director or Consultant
<PAGE> 48
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board, including sick leave, military leave, or any other
personal leave; provided, however, that for purposes of Incentive Stock Options,
any such leave may not exceed ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract (including certain Company
policies) or statute; or (ii) transfers between locations of the Company or
between the Company, Affiliates or its successors. The term of each Option may
be extended at the discretion of the Board (but not beyond (10) years from the
date of original grant) for the period of any such approved leave of absence.
(h) "Covered Employee" means the Chief Executive Officer and the
four (4) other highest compensated officers of the Company.
(i) "Director" means a member of the Board.
(j) "Disability" means total and permanent disability as defined
in Section 22(e)(3) of the Code.
(k) "Disinterested Person" means a Director: (i) who was not
during the one year prior to service as an administrator of the Plan granted or
awarded equity securities pursuant to the Plan or any other plan of the Company
or any of its affiliates, entitling the participants therein to acquire equity
securities of the Company or any of its affiliates except as permitted by Rule
16b-3(c)(2)(i); or (ii) who is otherwise considered to be a "disinterested
person" in accordance with Rule 16b-3(c)(2)(i), or any other applicable rules,
regulations or interpretations of the Securities and Exchange Commission.
(l) "Employee" means any person, including Officers and
Directors, employed by the Company or any Affiliate of the Company. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(m) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(n) "Fair Market Value" means, as of any date, the value of the
common stock of the Company determined as follows:
(i) If the common stock is listed on any established stock
exchange or a national market system, including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, the Fair Market Value of a share of common stock
shall be the average of the highest and lowest price at which the common stock
was sold on such exchange or national market system on the last market trading
day prior to the date as of which the determination is to be made;
(ii) If the common stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or is regularly quoted by a
recognized securities dealer by selling prices are not reported, the Fair Market
Value of a share of common stock shall be the mean between the high bid and high
asked prices for the common stock on the last market trading day prior to the
date of determination, as reported in the Wall Street Journal or such other
source as the Board deems reliable;
(iii) In the absence of an established market of the
common stock, the Fair Market Value shall be determined in good faith by the
Board.
2
<PAGE> 49
(o) "Incentive Stock Option" means an Option intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(p) "Nonstatutory Stock Option" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(r) "Option" means a stock option granted pursuant to the Plan.
(s) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an individual
Option grant. The Option Agreement is subject to the terms and conditions of the
Plan.
(t) "Optioned Stock" means the common stock of the Company
subject to an Option.
(u) "Optionee" means an Employee, Director or Consultant who
holds an outstanding Option.
(v) "Outside Director" means a Director who either (i) is not a
current employee of the Company or an "AFFILIATED CORPORATION" (as defined in
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company of an affiliated corporation receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), as not an officer of the Company or an affiliated corporation at
any time, and is not currently receiving direct or indirect remuneration in any
capacity other than as a Director, or (ii) is otherwise considered an "OUTSIDE
DIRECTOR" for purposes of Section 162(m) of the Code.
(w) "Plan" means this 1991 Stock Option Plan.
(x) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(y) "Securities Act" means the Securities Act of 1933, as
amended.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until
the Board delegates administration to a Committee, as provided in subsection
3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how the Option shall
be granted; whether the Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need not
be identical), including the time or times such Option may be exercised in whole
or in part; and the number of shares for which an Option shall be granted to
each such person.
(2) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
3
<PAGE> 50
(3) To amend the Plan as provided in Section 11.
(4) Generally, to exercise such powers and to perform such
acts as the Board deems necessary or expedient to promote the best interests of
the Company.
(c) The Board may delegate administration of the Plan to one or
more committees composed of not fewer than two (2) members (a "Committee"), all
of the members of which Committee shall be Disinterested Persons and may also
be, in the discretion of the Board, Outside Directors. If administration is
delegated to a Committee, such Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board (and
references in this Plan to the Board shall thereafter be to such Committee),
subject, however, to such resolutions, not inconsistent with the provisions of
the Plan, as may be adopted from time to time by the Board. The Board may
abolish such Committee at any time and revest in the Board the administration of
the Plan. Notwithstanding anything in this Section 3 to the contrary, the Board
or the Committee may delegate to a committee of one or more members of the Board
the authority to grant Options to eligible persons who (1) are not then subject
to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered
Employees and are not expected to be Covered Employees at the time of
recognition of income resulting from such Option, or (ii) not persons with
respect to whom the Company wishes to comply with Section 162 (m) of the Code.
(d) Any requirement that an administrator of the Plan be a
Disinterested Person shall not apply (i) prior to the date of the first
registration of an equity security of the Company under Section 12 of the
Exchange Act, or (ii) if and to the extent the Board or the Committee expressly
declares that such requirement shall not apply. Any Disinterested Person shall
otherwise comply with the requirements of Rule 16b-3.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to
adjustments upon changes in stock, the stock that may be sold pursuant to
exercises of Options shall not exceed in the aggregate three million (3,000,000)
shares of the Company's common stock; provided, however, that if any Option
granted under the Plan shall for any reason expire or otherwise terminate
without having been exercised in full, the stock not purchased under such Option
shall revert to and again become issuable under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) A Director shall in no event be eligible for the benefits of
the Plan unless at the time discretion is exercised in the selection of the
Director as a person to whom Options may be granted, or in the determination of
the number of shares which may be covered by Options granted to the Director:
(i) the Board has delegated its discretionary authority over the Plan to a
Committee which consists solely of Disinterested Persons; or (ii) the Plan
otherwise complies with the requirements of Rule 16b-3. The Board shall
otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall
not apply (i) prior to the date of the first registration of an equity security
of the Company under Section 12 of the Exchange Act, or (ii) if and to the
extent the Board or Committee expressly declares that it shall not apply.
(c) No person shall be eligible for the grant of an Incentive
Stock Option if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its Affiliates
4
<PAGE> 51
unless the exercise price of such Incentive Stock Option is at least one hundred
ten percent (110%) of the fair market value of such stock at the date of grant
and the Incentive Stock Option is not exercisable after the expiration of five
(5) years from the date of grant.
(d) No employee shall be eligible to be granted in any calendar
year Options covering more than 3% of the total number of shares of the
Company's common stock outstanding on the record date for the Company's 1996
Annual Meeting of Shareholders.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms
and conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) Term. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) Price. The exercise price of each Incentive Stock Option
shall be not less than one hundred percent (100%) of the fair market value of
the stock subject to the Option on the date the Option is granted. The exercise
price of each Nonstatutory Stock Option shall be not less than fifty percent
(50%) of the fair market value of the stock subject to the Option on the date
the Option is granted.
(c) Consideration. The purchase price of stock acquired pursuant
to an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the option is exercised, or (ii) at
the discretion of the Board or the Committee, either at the time of the grant or
exercise of the Option, (A) by delivery to the Company of other common stock of
the Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or to
whom the Option is transferred pursuant to subsection 6(d), or (C) in any other
form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be charged at the minimum rate of interest
necessary to avoid the treatment as interest, under any applicable provisions of
the Code, of any amounts other than amounts stated to be interest under the
deferred payment arrangement.
(d) Transferability. An Incentive Stock Option shall not be
transferable except by will or by the laws of descent and distribution, and
shall be exercisable during the lifetime of the person to whom the Incentive
Stock Option is granted only by such person. A Nonstatutory Stock Option shall
not be transferable except by will or by the laws of descent and distribution,
and shall be exercisable during the lifetime of the person to whom the Option is
granted only by such person. The person to whom the Option is granted may, be
delivering written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionee, shall
thereafter be entitled to exercise the Option.
(e) Vesting. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may, but
need not, be equal). The Option Agreement may provide that from time to time
during each of such installment periods, the Option may become exercisable
("vest") with respect to some or all of the shares allotted to that period, and
may be exercised with respect to some or all of the shares allotted to such
period and/or any prior period as to which the Option became vested but was not
fully exercised. During the remainder of the term of the Option (if its term
extends beyond the end of the installment periods), the Option may be exercised
from time to time with respect to any shares then remaining subject to the
Option. The provisions of this subsection 6(e) are subject to any Option
provisions governing the minimum number of shares as to which an Option may be
exercised.
5
<PAGE> 52
(f) Securities Law Compliance. The Company may require any
Optionee, or any person to whom an Option is transferred under subsection 6(d),
as a condition of exercising any such Option, (1) to give written assurances
satisfactory to the Company as to the Optionee's knowledge and experience in
financial and business matters and/or to employ a purchaser representative
reasonably satisfactory to the Company who is knowledgeable and experienced in
financial and business matters, and that he or she is capable of evaluating,
alone or together with the purchaser representative, the merits and risks of
exercising the Option; and (2) to give written assurances satisfactory to the
Company stating that such person is acquiring the stock subject to the Option
for such person's own account and not with any present intention of selling or
otherwise distributing the stock. These requirements, and any assurances given
pursuant to such requirements, shall be inoperative if (i) the issuance of the
shares upon the exercise of the Option has been registered under a then
currently effective registration statement under the Securities Act, or (ii) as
to any particular requirement, a determination is made by counsel for the
Company that such requirement need not be met in the circumstances under the
then applicable securities laws.
(g) Termination of Employment or Relationship as a Director or
Consultant. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates (other than upon the Optionee's death or
Disability), the Optionee may exercise his or her Option, but only within such
period of time as is determined by the Board, and only to the extent that the
Optionee was entitled to exercise it at the date of termination (but in no event
later than the expiration of the term of such Option as set forth in the Option
Agreement). In the case of an Incentive Stock Option, the Board shall determine
such period of time (in no event to exceed three (3) months from the date of
termination) when the Option is granted. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become issuable under the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified in the Option Agreement,
the Option shall terminate, and the shares covered by such Option shall revert
to and again become issuable under the Plan.
(h) Disability of Optionee. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's Disability, the Optionee may exercise his or her Option, but only
within twelve (12) months from the date of such termination (or such shorter
period specified in the Option Agreement), and only to the extent that the
Optionee was entitled to exercise it at the date of such termination (but in no
event later than the expiration of the term of such Option as set forth in the
Option Agreement). If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become issuable under the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the shares covered by
such Option shall revert to and again become issuable under the Plan.
(i) Death of Optionee. In the event of the death of an Optionee,
the Option may be exercised, at any time within twelve (12) months following the
date of death (or such shorter period specified in the Option Agreement) (but in
no event later than the expiration of the term of such Option as set forth in
the Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the Option by bequest or inheritance, but only to the extent
the Optionee was entitled to exercise the Option at the date of death. If, at
the time of death, the Optionee was not entitled to exercise his or her entire
Option, the shares covered by the unexercisable portion of the Option shall
revert to and again become issuable under the Plan. If, after death, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance does not exercise the Option within the time specified
herein, the Option shall terminate, and the shares covered by such Option shall
revert to and again become issuable under the Plan.
(j) Early Exercise. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee, Director
or Consultant to exercise the Option as to any part or all of the shares subject
to the Option prior to the full vesting of the Option. Any unvested shares so
purchased may be subject to a repurchase right in favor of the Company or to any
other restriction the Board determines to be appropriate.
6
<PAGE> 53
(k) Withholding. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2) authorizing
the Company to withhold shares from the shares of the common stock otherwise
issuable to the participant as a result of the exercise of the Option; or (3)
delivering to the Company owned and unencumbered shares of the common stock of
the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.
(b) The Company shall seek to obtain from each regulatory
commission or agency having jurisdiction over the Plan such authority as may be
required to issue and sell shares of stock upon exercise of the Options;
provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any Option or any stock
issued or issuable pursuant to any such Option. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission or agency
the authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such Options
unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall
constitute general funds of the Company.
9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at
which an Option may first be exercised or the time during which an Option or any
part thereof will vest pursuant to subsection 6(e), notwithstanding the
provisions in the Option stating the time at which it may first be exercised or
the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with respect to, any shares subject to such
Option unless and until such person has satisfied all requirements for exercise
of the Option pursuant to its terms.
(c) Throughout the term of any Option, the Company shall make
available to the holder of such Option, not later than one hundred twenty (120)
days after the close of each of the Company's fiscal years during the Option
term, such financial and other information regarding the Company as comprises
the annual report to the stockholders of the Company provided for in the bylaws
of the Company.
(d) Nothing in the Plan or any instrument executed or Option
granted pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment or relationship as a
Director or Consultant of any Employee, Director, Consultant or Optionee with or
without cause.
(e) To the extent that the aggregate fair market value
(determined at the time of grant) of stock with respect to which Incentive Stock
Options granted after 1986 are exercisable for the first time by any Optionee
during any calendar year under all plans of the Company and its Affiliates
exceeds one hundred thousand dollars ($100,000), the Options or portions thereof
which exceed such limit (according to the order in which they were granted)
shall be treated as Nonstatutory Stock Options.
7
<PAGE> 54
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, stock dividend, dividend in property other than cash, stock
split, liquidating dividend, combination of shares, exchange of shares, change
in corporate structure or otherwise), the Plan and outstanding Options will be
appropriately adjusted in the class(es) and maximum number of shares subject to
the Plan as well as the maximum number of shares subject to award to any
employee during any calendar year subject to paragraph 5, and each outstanding
Option will be appropriately adjusted in the class(es), number of shares and
price per share of stock subject to outstanding Options.
(b) In the event of: (1) a dissolution or liquidation of the
Company; (2) a merger or consolidation in which the Company is not the surviving
corporation; or (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's common stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise, then at the sole
discretion of the Board and to the extent permitted by applicable law: (i) any
surviving corporation shall assume any Options outstanding under the Plan or
shall substitute similar Options for those outstanding under the Plan; (ii) such
Options shall continue in full force and effect; (iii) the time during which
such Options may be exercised shall be accelerated and the Options terminated if
not exercised prior to such event; or (iv) such Options shall be terminated if
not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for options
under the Plan;
(ii) Modify the requirements as to eligibility for
participation in the Plan (to the extent such modification requires stockholder
approval in order for the Plan to satisfy the requirements of Section 422 of the
Code); or
(iii) Modify the Plan in any other way if such
modification requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with the requirements of
Rule 16b-3.
(b) It is expressly contemplated that the Board may amend the
Plan in any respect the Board deems necessary or advisable to provide Optionees
with the maximum benefits provided or to be provided under the provisions of the
Code and the regulations promulgated thereunder relating to Incentive Stock
Options and/or to bring the Plan and/or Incentive Stock Options granted under it
into compliance therewith.
(c) Rights and obligations under any Option granted before
amendment of the Plan shall not be altered or impaired by any amendment of the
Plan unless (i) the Company requests the consent of the person to whom the
Option was granted and (ii) such person consents in writing.
(d) The Board may in its sole discretion submit any other
amendment to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m) of
the Code and the regulations promulgated thereunder regarding the exclusion of
performance-based compensation from the limit on corporate deductibility of
compensation paid to certain executive officers.
8
<PAGE> 55
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time.
Unless sooner terminated, the Plan shall terminate on March 12, 2002, which
shall be within ten (10) years from the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No Options
may be granted under the Plan while the Plan is suspended or after it is
terminated.
(b) Rights and obligations under any Option granted while the
Plan is in effect shall not be altered or impaired by suspension or termination
of the Plan, except with the consent of the person to whom the Option was
granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but
no Options granted under the Plan shall be exercised unless and until the Plan
has been approved by the stockholders of the Company, and, if required, an
appropriate permit has been issued by the Commissioner of Corporations of the
State of California.
9
<PAGE> 56
APPENDIX A-7
STAC ELECTRONICS
1992 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED ON MARCH 13, 1992
AS AMENDED ON DECEMBER 2, 1994
1. PURPOSE.
(a) The purpose of the 1992 Non-Employee Directors' Stock Option Plan
(the "Plan") is to provide a means by which each director of Stac Electronics, a
California corporation (the "Company"), who is not otherwise an employee of the
Company or of any Affiliate of the Company (each such person being hereafter
referred to as a "Non-Employee Director") will be given an opportunity to
purchase stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company as those terms are defined
in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986,
as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
persons now serving as Non-Employee Directors of the Company, to secure and
retain the services of persons capable of serving in such capacity, and to
provide incentives for such persons to exert maximum efforts for the success of
the Company.
(d) The Company intends that the options issued under the Plan not be
incentive stock options as that term is used in Section 422 of the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors of the
Company (the "Board") unless and until the Board delegates administration to a
committee, as provided in subparagraph 2(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To construe and interpret the Plan and options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any option agreement, in a
manner and to the extent it shall deem necessary or expedient to make the Plan
fully effective.
(2) To amend the Plan as provided in paragraph 11.
(3) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of the
Company.
<PAGE> 57
(c) The Board may delegate administration of the Plan to a committee
composed of not fewer than two (2) members of the Board (the "Committee"). If
administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore possessed
by the Board, subject, however, to such resolutions, not inconsistent with the
provisions of the Plan, as may be adopted from time to time by the Board. The
Board may abolish the Committee at any time and revest in the Board the
administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to options granted
under the Plan shall not exceed in the aggregate four hundred thousand (400,000)
shares of the Company's Common Stock. If any option granted under the Plan shall
for any reason expire or otherwise terminate without having been exercised in
full, the stock not purchased under such option shall revert to and again become
available for issuance pursuant to exercises of options granted under the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. ELIGIBILITY.
Options shall be granted only to Non-Employee Directors of the Company.
5. NON-DISCRETIONARY GRANTS.
(a) Each person who is, after December 1, 1994, elected for the first
time by the Board or shareholders of the Company to serve as a Non-Employee
Director of the Company and who has not previously served as a member of the
Board shall, upon the date of such election, be granted an option (on the terms
and conditions set forth herein) to purchase twenty-five thousand (25,000)
shares of the Company's Common Stock (hereinafter referred to as an "Initial
Election Option").
(b) Each person has who previously served as a member of the Board
(whether or not as a Non-Employee Director) and who is, after December 1, 1994,
re-elected by the Board or shareholders of the Company to serve as a
Non-Employee Director of the Company shall, upon the date of such re-election be
granted an option (on the terms and conditions set forth herein) to purchase ten
thousand (10,000) shares of the Company's Common Stock (hereinafter referred to
as a "Re-Election Option").
6. OPTION PROVISIONS.
Each option shall contain the following terms and conditions:
(a) No option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) The exercise price of each option shall be equal to the fair market
value on the date of grant (the "Grant Date") of the stock subject to such
option. For purposes of this Plan, "fair market value" means, as of any date,
the value of the common stock of the Company determined as follows:
(1) If the common stock is listed on any established
stock exchange or a national market system, including
without limitation the National Market System of the
National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System,
2
<PAGE> 58
the fair market value of a share of common stock shall be
the closing price of the common stock on such exchange or
national market system on the date as of which the
determination is to be made (or, if such date is not a
trading day on such exchange or system, on the date that is
the first preceding market trading day prior to the date as
of which the determination is to be made);
(2) If the common stock is quoted on the NASDAQ System
(but not on the National Market System thereof) or is
regularly quoted by a recognized securities dealer but
selling prices are not reported, the fair market value of a
share of common stock shall be the closing price of the
common stock on the date as of which the determination is to
be made (or, if such date is not a trading day on such
exchange or system, on the date that is the first preceding
market trading day prior to the date as of which the
determination is to be made), as reported in the Wall Street
Journal or such other source as the Board deems reliable;
(3) In the absence of an established market for the
common stock, the fair market value shall be determined in
good faith by the Board.
(c) The purchase price of stock acquired pursuant to an option shall be
paid, to the extent permitted by applicable statutes and regulations, either (4)
in cash at the time the option is exercised, or (5) by delivery to the Company
of shares of the Company's Common Stock that have been held for the requisite
period necessary to avoid a charge to the Company's reported earnings and valued
at the fair market value on the date of exercise, or (3) by a combination of
such methods of payment.
(d) An option shall not be transferable except by will or by the laws of
descent and distribution, and shall be exercisable during the lifetime of the
person to whom the option is granted only by such person or by his guardian or
legal representative.
(e) Shares subject to options granted pursuant to the Plan shall become
issuable upon exercise of such options in accordance with their terms ("vest")
with respect to each optionee as follows:
i. Each Initial Election Option shall vest in five (5) equal
installments, according to the following schedule:
o 5,000 shares shall vest immediately prior to the date of
the first Annual Meeting of Shareholders of the Company
following the date of grant of such Option (the "Initial Vesting
Annual Meeting"); and
o An additional 5,000 shares shall vest immediately prior
to the date of each Annual Meeting of Shareholders of the
Company that is held following the Initial Vesting Annual
Meeting; and
ii. Each Re-Election Option shall vest in four (4) equal
installments, according to the following schedule:
o 2,500 shares shall vest immediately prior to the date of
the each Annual Meeting of Shareholders of the Company following
the date of grant of such Option;
provided, however, that no such option shall vest as set forth above in
paragraphs 6(e)(i) and (ii) unless the optionee has, during the entire period
prior to each applicable vesting date, continuously served as a Non-Employee
Director of the Company or any Affiliate of the Company.
3
<PAGE> 59
(f) The Company may require any optionee, or any person to whom an
option is transferred under subparagraph 6(d), as a condition of exercising any
such option: (1) to give written assurances satisfactory to the Company as to
the optionee's knowledge and experience in financial and business matters; and
(2) to give written assurances satisfactory to the Company stating that such
person is acquiring the stock subject to the option for such person's own
account and not with any present intention of selling or otherwise distributing
the stock. These requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the option has been registered under a then-currently-effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), or (ii), as to any particular requirement, a determination is
made by counsel for the Company that such requirement need not be met in the
circumstances under the then-applicable securities laws.
(g) Notwithstanding anything to the contrary contained herein, an option
may not be exercised unless the shares issuable upon exercise of such option are
then registered under the Securities Act or, if such shares are not then so
registered, the Company has determined that such exercise and issuance would be
exempt from the registration requirements of the Securities Act.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the options granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such options.
(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the options granted under the
Plan; provided, however, that this undertaking shall not require the Company to
register under the Securities Act either the Plan, any option granted under the
Plan, or any stock issued or issuable pursuant to any such option. If the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful issuance
and sale of stock under the Plan, the Company shall be relieved from any
liability for failure to issue and sell stock upon exercise of such options.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to options granted under the
Plan shall constitute general funds of the Company.
9. MISCELLANEOUS.
(a) Neither an optionee nor any person to whom an option is transferred
under subparagraph 6(d) shall be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to such option unless
and until such person has satisfied all requirements for exercise of the option
pursuant to its terms.
(b) Nothing in the Plan or in any instrument executed pursuant thereto
shall confer upon any Non-Employee Director any right to continue in the service
of the Company or any Affiliate or shall affect any right of the Company, its
Board or stockholders or any Affiliate to terminate the service of any
Non-Employee Director with or without cause.
(c) No Non-Employee Director, individually or as a member of a group,
and no beneficiary or other person claiming under or through him, shall have any
right, title or interest in or to any option reserved for the purposes of the
Plan except as to such shares of Common Stock, if any, as shall have been
reserved for him pursuant to an option granted to him.
4
<PAGE> 60
(d) In connection with each option made pursuant to the Plan, it shall
be a condition precedent to the Company's obligation to issue or transfer shares
to a Non-Employee Director, or an affiliate of such Non-Employee Director, or to
evidence the removal of any restrictions on transfer, that such Non-Employee
Director make arrangements satisfactory to the Company to insure that the amount
of any federal or other withholding tax required to be withheld with respect to
such sale or transfer, or such removal or lapse, is made available to the
Company for timely payment of such tax.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any option granted under the Plan (through merger, consolidation,
reorganization, recapitalization, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange of
shares, change in corporate structure or otherwise), the Plan and outstanding
options will be appropriately adjusted in the class(es) and maximum number of
shares subject to the Plan and the class(es) and number of shares and price per
share of stock subject to outstanding options.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a merger or consolidation in which the Company is not the surviving
corporation; (3) a reverse merger in which the Company is the surviving
corporation but the shares of the Company's Common Stock outstanding immediately
preceding the merger are converted by virtue of the merger into other property,
whether in the form of securities, cash or otherwise; or (4) any other capital
reorganization in which more than fifty percent (50%) of the shares of the
Company entitled to vote are exchanged, then to the extent permitted by
applicable law, the time during which such options may be exercised shall be
accelerated and the options terminated if not exercised prior to such event.
11. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan,
provided, however, that the Board shall not amend the plan more than once every
six months, with respect to the provisions of the plan which relate to the
amount, price and timing of grants, other than to comport with changes in the
Code, the Employee Retirement Income Security Act, or the rules thereunder.
Except as provided in paragraph 10 relating to adjustments upon changes in
stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for options under the
Plan;
(2) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to comply with the requirements of Rule 16b-3 promulgated
under the Exchange Act); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to comply with the
requirements of Rule 16b-3 promulgated under the Exchange Act.
(b) Rights and obligations under any option granted before any amendment
of the Plan shall not be altered or impaired by such amendment of the Plan
unless (i) the Company requests the consent of the person to whom the option was
granted and (ii) such person consents in writing.
5
<PAGE> 61
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on March 12, 2002. No options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any option granted while the Plan is in
effect shall not be altered or impaired by suspension or termination of the
Plan, except with the consent of the person to whom the option was granted.
13. EFFECTIVE DATE OF PLAN; CONDITIONS OF EXERCISE.
(a) The Plan shall become effective upon adoption by the Board of
Directors, subject to the condition subsequent that the Plan is approved by the
stockholders of the Company.
(b) No option granted under the Plan shall be exercised or exercisable
unless and until the condition of subparagraph 13(a) above has been met.
6
<PAGE> 62
STAC SOFTWARE, INC.
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON MARCH 11, 1999
The undersigned hereby appoints John T. Ticer and Clifford L. Flowers,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of Stac Software, Inc. (the
"Company") which the undersigned may be entitled to vote at the Annual Meeting
of Stockholders of the Company to be held at the Doubletree Hotel - Del Mar,
11915 El Camino Real, San Diego, California, on Thursday, March 11, 1999 at
10:00 a.m. local time, and at any and all continuations, adjournments or
postponements thereof, with all powers that the undersigned would possess if
personally present, upon and in respect of the following matters and in
accordance with the following instructions, with discretionary authority as to
any and all other matters that may properly come before the meeting.
UNLESS A CONTRARY DIRECTION IS INDICATED, THIS PROXY WILL BE VOTED FOR
ALL NOMINEES LISTED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3, 4 AND 5 AS MORE
SPECIFICALLY DESCRIBED IN THE PROXY STATEMENT. IF SPECIFIC INSTRUCTIONS ARE
INDICATED, THIS PROXY WILL BE VOTED IN ACCORDANCE THEREWITH.
MANAGEMENT RECOMMENDS A VOTE FOR THE NOMINEES FOR DIRECTOR LISTED BELOW.
PROPOSAL 1: To elect directors to serve for the ensuing year and until their
successors are elected.
[ ] FOR all nominees listed below (except as marked to the
contrary below).
[ ] WITHHOLD AUTHORITY to vote for all nominees listed
below.
NOMINEES: Gary W. Clow, Robert W. Johnson, Ph.D., Antonio Perez,
Peter D. Schleider, Corey M. Smith and John T. Ticer
TO WITHHOLD AUTHORITY TO VOTE FOR ANY NOMINEE(S), WRITE SUCH NOMINEE(S)'
NAME(S) BELOW:
- --------------------------------------------------------------------------------
(Continued on other side)
<PAGE> 63
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 2.
PROPOSAL 2: To approve a series of amendments to the Company's Certificate of
Incorporation to effect, at any time prior to the Company's 2000
Annual Meeting of Stockholders, a reverse stock split of the
Company's Common Stock whereby each outstanding 2, 2.5, 3, 3.5
and 4 shares, respectively, would be combined, converted and
changed into one share of Common Stock, with the effectiveness of
one of such amendments and the abandonment of the other
amendments as permitted under Section 242(c) of the Delaware
General Corporation Law, or the abandonment of all amendments, to
be determined by the Board of Directors.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
(Continued on other side)
<PAGE> 64
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 3.
PROPOSAL 3: To ratify and approve an increase in the aggregate number of
shares of Common Stock authorized for issuance under the
Company's 1992 Stock Option Plan, as amended, by 7,373,363 shares
in connection with the increase in shares subject to outstanding
options thereunder resulting from the Company's spin-off of
Hi/fn, Inc. ("Hi/fn") in December 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 4.
PROPOSAL 4: To ratify and approve an increase in the aggregate number of
shares of Common Stock authorized for issuance under the
Company's 1992 Non-Employee Directors' Stock Option Plan, as
amended, by 493,785 shares in connection with the increase in
shares subject to outstanding options thereunder resulting from
the Company's spin-off of Hi/fn in December 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
(Continued on other side)
<PAGE> 65
(Continued from other side)
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSAL 5.
PROPOSAL 5: To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent accountants for the fiscal year ending
September 30, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
DATED ________________, 1999
________________________________________
Signature(s)
________________________________________
Name of stockholder (if other than
individual)
Please sign exactly as your name appears
hereon. If the stock is registered in
the names of two or more persons, each
should sign. Executors, administrators,
trustees, guardians and
attorneys-in-fact should add their
titles. If signer is a corporation,
please give full corporate name and have
a duly authorized officer sign, stating
title. If signer is a partnership,
please sign in partnership name by
authorized person.
PLEASE VOTE, DATE AND PROMPTLY RETURN THIS PROXY
IN THE ENCLOSED RETURN ENVELOPE WHICH IS POSTAGE
PREPAID IF MAILED IN THE UNITED STATES.
